But this costly burden to entrepreneurial firms has been a bonanza for those who audit them. Known facetiously as the Accountants Full Employment Act, Sarbox works like a never-ending earmark to the accounting industry. And like most recipients of earmarks — the “government rich” as Peter Schweizer refers to them in his new book, Throw Them All Out — the accounting lobby is loath to give up its government-granted riches.
Through groups such as the Center for Audit Quality, a membership organization for auditors, the accounting industry cloaks its self-interest as advocacy for good corporate governance. Unfortunately, it has found at least two Republicans on the Financial Services Committee who seem willing to do its bidding: Reps. John Campbell (R., Calif.), and Steve Pearce (R., N.M.).
Even though he represents Orange County, one of the most conservative areas in the nation, Campbell has had some significant fights with the fiscal Right. He is the GOP champion of government-sponsored housing enterprises, and this month he was one of four members — and the only Republican — on the financial-services committee to vote against
limiting the salaries and bonuses of Fannie Mae and Freddie Mac executives.
And as Andrew Stiles reported in National Review Online, Campbell fought hard against most other House Republicans in his push for an increase in Fannie and Freddie’s loan limits to $729,750, in essence government backing for mortgages for McMansions. Without citing much economic data — indeed contradicting authorities from the American Enterprise Institute’s Edward Pinto to an Obama administration white paper — Campbell expressed fear to Roll Call that the housing market and economy would “crater” without an increase in these mortgage limits.
Yet Campbell does not seem to share the concerns of many researchers that innovative job-creating firms are cratering under the weight of Sarbanes-Oxley. A certified public accountant by trade, Campbell is echoing the arguments of the accounting industry against Fincher’s bill.
At a markup session of the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises in October, Campbell proclaimed that the Fincher bill went “way too far — too much in the wrong way — and too fast.” Noting the “very robust” auditing standards under Sarbox, Campbell argued, “We can’t know if they (companies) have internal controls for sure without auditing them.”
In his remarks and in an interview with me just after the markup, Campbell stressed that he would urge the Public Company Accounting Oversight Board (PCAOB), the Sarbox-created auditing regulator, to tailor rules to make compliance easier for small firms. However, the PCAOB has been urged to do that for the nine years it has been in existence, and the SEC still finds that smaller firms bear a disproportionate Sarbox burden.
In the markup, Campbell agreed to a reduction in the threshold for exemption from $500 million to $350 million. This is less than half of the $1 billion threshold for Sarbox exemption recommended by the Obama jobs council. Yet Campbell indicated that even with this compromise, he may vote no when the bill comes before the entire committee, as it should this week.
And the compromise didn’t satisfy Pearce, who became the only GOP member to vote “no” in the markup. In a rambling speech, Pearce stressed, “I am as big a deregulator as there is in Congress,” but said he was “looking with some concern” at the bill. He then seemed to make the argument that Congress shouldn’t worry about Sarbox and the SEC, since the Environmental Protection Agency is the real problem. This is akin to an argument that doctors should only worry about patients’ hearts and not their livers.