Sarbanes-Oxley: A Blank Check for Auditors

   Section 404 imposes huge penalties for complying with vague standards on measuring the effectiveness on a corporation's internal controls.  The big winners? Auditors.  Auditors are SOX policemen.  The SEC estimated, in proposing Section 404 rules in 2002, that the additional audit costs would be "minimal."  The evidence from the first round of 404 filings by the country's larger firms is that audit fees jumped over 58% (and this on top of 20% increases for the past three years).  The average additional audit fee for Section 404 attestation was, in a survey of 217 corporations (FEI study), $1.3 Million -- hardly minimal.  Moreover, issuers cannot negotiate with auditors for lower fees -- there are only 4; they charge similarly; and, to top it off, changing auditors requires an immediate Form 8K notice that will hammer the issuer's stock price as Wall Street rumors start to fly.  This is the ultimate irony: Over 60% of the provisions in SOX were aimed fixing an auditing industry that failed to catch major financial frauds; yet the Act has been an auditing industry boondoggle.  What a regulatory train wreck;  this is nothing short of a catastrophe.