Former Fed Chairman Alan Greenspan was in rare form Monday night when he shocked a Boston business audience by stating that the Sarbanes Oxley rule enacted in 2002 had become a “nightmare” and should be scrapped as soon as possible. Greenspan stated that “the Sarbanes Oxley ruling hampered business, discouraged risk-taking and were driving foreign companies to shun the New York Stock Exchange for the lighter rules in London.” The only part of the new rules he praised was concerning chief executives having to certify the financial statements of their companies.

I have been following the Sarbanes Oxley issue since it was enacted and finally there are now some every promising new develpoments. But let’s start from the beginnning so you can get the whole picture.

For those of you who have been sleeping for the past four years, Sarbannes Oxley, commonly referred to as SOX, was enacted in response to the creative acounting practices by CPA firms for the likes of companies like Enron and the resulting devastation that they caused to millions of shareholders. As usual, the government went way overboard in responding to those atrocities. The new rules, which were enacted to protect investors, are now costing public companies a fortune and are thus affecting earnings which affect their stock price. Forty percent of the top 100 companies in the US stated that they are spending in excess of $10 million a year for SOX compliance. The most interesting outcome to this entire debacle was that the CPA firms, who caused this mess with their creative accounting, were actually thte ones who reaped a huge windfall of profits by the implementation of the new SOX accounting rules. Ironic, isn’t it?

In May of this year, The Securities and Exchange Commission the (”SEC”) heard from the Advisory Committee they formed last year to invstigate the effects of SOX on public companies. Their findings revealed most companies found compalying to the new rules and regulations was cumbersome and costly. Additionally, the new rules were forcing small companies to privatise and were seriously damaging the ability of new companies to go public. See the press release here. When the SEC’s own Advisory Committee made recommendations to “amend” the rules for smaller companies, the SEC ignored the recommendations. If you want to read the actual recommendations of the Committee, you can here.

Things were looking pretty grim until just recently. Then, on September 12, 2006, an announcement was made in The Wall Street Journal : “A new independent commission that plans to recommend changes to the 2002 Sarbannes-Oxley Act and other regulations it believes hinder the competitiveness of U.S. capital makrets will be unveiled on Tuesday.”

“The Committee on Capital Markets Regulation” will be chaired by former White House economic adviser Glenn Hubbard and former Goldman Sachs president John Thornton, the Journal said.

The group has been coordinatiing its efforts with new U.S. Treasury Secretary Henry Paulson and plans to submit its recommendations by the end of November, the newspaper said.

This is a very interesting development for two reasons:

1. The new US Treasury Secretary, not the SEC, is backing this effort and he has an impressive group from Wall Street to serve on the Committee.
2. Both Senators Sarbannes and Oxley are scheduled to retire in early November of this year.

You can bet there will be changes to SOX being initiated by the beginning of 2007. If you want to follow the progress of the proposed legislation changes regarding SOX, I would suggest you use the Free Enterprise Institute site. They have the most up to date information concerning these issues.

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