The Fight Against Corporate Accountability

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"The Fight Against Corporate Accountability"

In this week’s Economist there is a lengthy article criticizing Sarbanes-Oxley, the corporate accountability law passed in the wake of the Enron scandals. It’s likely to be cited frequently by business interests working to weaken the law.

The article includes many passages carping about implementation costs like this one:

A survey by the FEI, an association of top financial executives, found that companies paid an average of $2.4m more for their audits last year than they had anticipated (and far more than the statute’s designers had envisaged). Deloitte, a big accounting firm, has said that large firms have on average spent nearly 70,000 additional man-hours complying with the new law.

Two responses:

1. In 2004, corporate profits were at the highest level ever recorded by the Bureau of Economic Analysis. So these costs aren’t preventing companies from making a lot of money.

2. Sarbanes-Oxley was designed to impose additional costs on businesses, in exchange for less risk to investors. It’s always cheaper to not have to worry about the rules.

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