Sunday, February 6, 2005
Has Sarbanes-Oxley changed the landscape in the white collar area? Passed in 2002, it requires accounting procedures that are intended to reduce fraud. We spoke of some of its ramifications, for example in the post titled "Penthouse Execs Accused of Accounting & Sarbanes-Oxley Violations" and more recently we see it as playing a part in the trial of Scrushy. (see also here).
The New York Times now speaks about another collateral consequence of the Sarbanes-Oxley Act here. The article reports on the fact that some "top accounting and audit firms" are dropping clients in light of this Act.
Is this good? Well perhaps in light of the government's indictment of Andersen (now on certiorari before the Supeme Court), which reduced the number from five to four of major accounting firms, this is beneficial to other accounting firms. But what about the smaller companies that need to hire an accounting firm to comply with Sarbanes-Oxley? Will the cost to the smaller companies drive some of them out of business? Will the increased scrutiny and exposure of fraud when weighed against these costs prove to be beneficial for all? Perhaps we need more time to fully evaluate the effect of Sarbanes-Oxley.