Let me tell you something about SOX reports…

by redshift

redshift sets a memo on your desk.
Let me tell you something about SOX reports…

They’re well-nigh useless.

In case you haven’t heard of it, the Sarbanes-Oxley Act of 2002 (Sarbanes, D-Maryland; Oxley, R-Ohio) was an effort to reduce the corruption in financial reporting in the wake of scandals like Enron, Arthur Andersen, and WorldCom. Companies were hugely inflating their reported assets and hiding information from investors. Now, I’ll grant that this was a problem. Huge companies were screwing investors.

Two side notes:

  1. Were they really screwing anyone but the competition? Inflating your value is dishonest, but it isn’t stealing anything from anyone and it doesn’t hurt how much money the investors get.
  2. Companies do what they do to make money. It’s the point of capitalism. Is there really a reason that everything should be made public for a public company? Yes, pertinent business information, but we don’t need to know the details about exactly how a company files their data – it’s their job to worry about it, it’s our job to support them with our money if we so choose.

On the face of it, the SOX act was the right decision. It was passed with flying colors. Was it really the right move to make? I submit that it was not.

The essential tenet of SOX is that CEO/CFOs have to certify financial reports regarding profits, internal and external audits, auditor independence, and internal controls related to financial reporting. Basically, they have to say they didn’t fuck up, fuck you, or fuck themselves. The company has to hire people to do internal auditing, hire external auditors to audit the internal auditors, and audit both auditors themselves, signing off on the whole thing.

I work with the internal auditors.

This gives me a somewhat unique perspective into the life of the SOX act within a corporation. I don’t do auditing myself, so I’m not hated, but I get to see both audits going on – not from an employee’s perspective because they hate audits, not from an auditor’s perspective because they hate the company, and not from an outsider’s perspective because they don’t really give a crap.

The problem is the scope. SOX is supposed to be about financial reporting and honesty. This ballooned into corporation-wide nitpicking that’s cost corporations years of time and billions of dollars to deal with. (which I’m not complaining about, because it’s given me a job. Woohoo!) If a company actually just had to follow the SOX Act (which is rather short, when you consider the legalese) they wouldn’t have to change much. A good company would already audit their performance and make reports. Now all public companies have to tear apart their system, which worked just fine before mind you, and put it back together with different parts and screws thrown into the instructions.

My company had to completely restructure virtually every aspect of the business. Not just financial reports. Even tiny business locations having nothing to do with our money were scrambling to reorganize their operations to be “compliant.” It probably set back the actual business by a year or more. I work in the IT sector that had to completely rewrite every one of its policies. How does that make sense? How does that affect our year-end financial reports? Sure, every person goes into the end result of a successful business, but our company was honest before. We never had trouble with finances or investors, our IT was smooth… Sarbanes and Oxley come along and we’re suddenly fuckups. We’ve got external auditors breathing down our necks about things completely unrelated to the business end.

I wouldn’t call SOX a failure as it did cause some companies to implement good policy that might help them out. However, isn’t it the nature of capitalism for the good, well-organized companies to succeed? If we just enforced honest financial reporting, rather than complete overhauls, wouldn’t the good companies naturally come to the top especially if they already had responsible reporting techniques? Forcing everyone to do unnecessary work has put a lot of stress on the large American corporations recently. And yes, it’s the government’s fault.