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Cox and Olsen Speak at Chamber Event on U.S. Capital Markets

SEC Chairman Christopher Cox said it is wrong to condemn the entire Sarbanes-Oxley Act based on the problems in implementing section 404. He urged people to remember what had occurred before the passage of the Act. Cox sees no need to amend the Act, just the way it was implemented. The Act is only a few years old, he said, and should not be open for amendments. Cox was among the keynote speakers at yesterday's capital markets summit hosted by the Chamber of Commerce.

The summit also featured keynote addresses by PCAOB Chairman Mark Olson, Rep. Barney Frank (D-MA) and Senator Christopher Dodd (D-CT). The Chamber financed an independent bipartisan commission to present recommendations to improve the U.S. competitive position in the global markets. Members of the commission addressed the key recommendations at the Chamber's summit. Tom Donohue, the Chamber's president and CEO, also announced the formation of a Center for Capital Markets Competitiveness to advance the legislative, regulatory and legal agenda advocated by the three major reports that recently examined the capital markets.

Cox joked about the SEC's uneasy acquaintance with the Chamber, having been the subject of several high profile lawsuits brought by the Chamber. Cox was criticized in some quarters for appearing at the Chamber event, but said he will not play the stereotype of a deregulatory Republican Congressman. It is not necessary for their interests to be at odds, according to Cox. He cited the words of the SEC's first chairman, Joseph Kennedy, who said the SEC is the partner of honest business and the prosecutor of dishonesty. Cox welcomed the opportunity to study the report by the bipartisan commission, and expressed appreciation for the members' energy and effort.

Frank, chairman of the House Financial Services Committee, noted that one of the commission's recommendations is to make the Sarbanes-Oxley Act part of the 1934 Act so that the SEC will have the flexibility to address some of the issues that have arisen with the implementation of the SOX provisions. If the SEC needs additional legislative authority, Frank said the Commission should ask for it.

Olson noted that some of the studies have factored auditors into the issue of U.S. competitiveness since they play a role in ensuring the accuracy of public company financial statements. The PCAOB was created in the aftermath of significant corporate scandals and Olson urged everyone to remember why the reforms were necessary.

Olson discussed the PCAOB's proposal to revise its original standard for the audit of internal controls over financial reporting. About 170 comment letters have been received, he said, many with recommendations to further improve the standard. Olson said the recommendations are being carefully considered.

The larger auditing firms have begun to train their engagement teams based on the proposed standard, according to Olson. He said the proposal will likely evolve somewhat before its final adoption in response to the comments, but believes the early training may result in a smoother transition once the standard is adopted.

Olson believes there is a renewed confidence in financial reporting and that the PCAOB has contributed to the reduction in the risk of financial reporting failures. The enhanced auditor independence requirements have resulted in a fundamental change in the client-firm relationship, he said.

On the issue of audit firm concentration, Olson said he is encouraged by the growth that is taking place in the firms following the Big 4 firms. These firms' improvement in size and expertise is good for the markets and provides additional choices for issuers. Rather than attempt to compete based on talent, capital and legal structure, Olson said some firms are choosing to specialize.

Olson believes the debate that is underway about global market competitiveness is healthy and appropriate. Unnecessary costs should be identified and eliminated, he said, but that mission should not detract from developing and implementing the high quality standards and investor protections that have been the trademark of the U.S. markets.

Dodd said the commission has presented a thoughtful report and has made an important contribution to the debate. He said the Senate Banking Committee will hold hearings in the coming weeks. There are three considerations to keep in mind, according to Dodd. The first is that the U.S. markets remain the most dominant in the world and have done so even in light of the 9/11 attacks, corporate scandals and the war in Iraq.

The U.S. markets remain strong because of the architecture by which they are governed, according to Dodd. At the same time, the laws and regulations should not be entrenched. They should be subject to reexamination, in his view.

Dodd also noted that American firms are leaders in foreign markets and have helped to shape and guide them. He said market growth overseas should be embraced because it opens new markets for American businesses. Dodd also emphasized the importance of cultivating and attracting intellectual capacity to ensure an educated and skilled workforce.

Jacquelyn Lumb