Pearce and Campbell’s defection gave Democrats the cover they needed to take their instinctive pro-regulatory position despite Obama’s implied support for Fincher’s approach. “I want to compliment Mr. Campbell . . . but [the bill] still goes too far,” said Carolyn Maloney (D., N.Y.), in joining all committee Democrats in voting no. Maloney had expressed support for Sarbox relief in the past.
A claim made by Maloney, Pearce, Campbell, and the accounting lobby is that internal-control audits are essential for fraud detection. Yet financial analysts looking at the subprime scandals in Sarbox’s wake have come to the almost opposite conclusion. By requiring resources to be spent on auditing “internal controls” that were trivial for shareholders yet lucrative for auditors — such as employee passwords and possession of office keys — Sarbox Section 404 actually diverted attention away from ensuring accurate reporting of a company’s financial condition.
Commenting on corporate misstatements during the mortgage bubble, respected analyst Janet Tavakoli had this to say on Sarbox to housing journalist Robert Stowe England in his new book Black Box Casino: “Sarbanes-Oxley did nothing. It didn’t work. It was a total waste.”
At this writing, it looks as if there is hope for relief from this “waste.” According to an advocate for small public firms, Representative Pearce — whose office didn’t return my query — may be reconsidering after discussions with the entrepreneurial sector. And a broad swath of the center-right coalition — from CEI and Americans for Prosperity to the Christian Coalition — has signed on to a letter telling conservative members of Congress to “free honest entrepreneurs and their shareholders from the yoke of Sarbanes-Oxley’s burdensome mandates.”
Still, it would be a travesty if the powerful accounting industry yokes just enough GOP members to the left of the Obama administration on this needed regulatory relief.