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A host of CFOs sound off about their Sarbox problems prior to the SEC's Wednesday roundtable.
Marie Leone, CFO.com | US
May 9, 2006
It's easy to blame SOX for the difficulty of "going public," but maybe it supports more focused attention on the incredible number of failed IPOs. Public money is public money and whether you are small or large is not the issue. All publically invested money deserves the same amount of protection against poor financial reporting and fraud. A million dollars lost on a Fortune 100 firm due to "cooked financials" and/or fraud is no less a loss than that same money invested in a small company for the same reason. Compliance is the cost to play. If compliance with standards enables investors to evaluate the true capability and performance expectations of an IPO; then SOX should be considered a gift that both protects investors and contributes to the reduction of the number of IPOs to those companies that have the ability to acquire the necessary capital while withstanding the scrutiny of compliance after going public. The argument given in this article promotes a higher risk tolerance for poor reporting and potential fraud due to the size of a firm - RUBBISH!! All firms regardless of size that want the benefit of public funds should have reasonable reporting and fraud controls and after going public be able to sustain these standards. SOX requirements may make it harder for a small company's ownership to "make a fortune" by going public on outside capital investment, but is that really the issue we need to be considering? Maybe the it will significantly reduce the number of marginal IPOs that ultimately fail.
Posted by William Braun | May 14, 2006 06:46 pm
Sarbox lite advocates never seem to say what controls they want to ignore. They assume that Sarbox forces companies to install the gold standard. My view is that Sarbox represents "minimum standards" of control much like "GAAP" represents "minimum standards" of accounting. If you want to put someone else's money at risk, you need to do so in a way that best protects them.
Posted by Chris Corrie | May 10, 2006 08:45 am
I appreciate the frustration of Mr. Broderick with respect to the disproportionate cost burden that SOX places on smaller companies. Hopefully the SEC/PCAOB will come up with some sensible streamlining of 404 to maintain and enhance investor confidence in a more affordable manner. However, smaller company investors are not well served by avoiding the legislation. Avoidance may actually be "penny wise", but longer-term "pound foolish" as Mr. Broderick's business is now drained of cash, has increased debt, and in his own words has more limited growth prospects. Sounds like a recipe to stay small. The reality is that going public has always been a greater strain (pre and post Sarbanes-Oxley) on smaller businesses as there is a compliance cost "barrier-to-entry". If you take the public's money you are going to pay the price. In the example mentioned in your article, it looks like a hefty price is being paid by not going public.
Posted by Charley Best | May 09, 2006 06:32 pm
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