The Sarbanes-Oxley Act of 2002 (SOX) has been in effect now for over half a decade, and the Public Company Accounting Oversight Board (PCAOB) has been issuing auditing standards and guidance on how to implement those standards for nearly as long. The perceived merits, flaws, and consequences of SOX and the PCAOB have been reported and debated repeatedly in the financial press. Yet, William J. Dodwell notes ("Six Years of the Sarbanes-Oxley Act: Are We Better Off?' Vie CPA Journal. August 2008) that the question remains "Are we better off?" since the implementation of SOX. We have also asked ourselves this question, and it motivated us to engage in a series of research projects involving various facets of SOX and the PCAOB that may help find an answer by providing feedback from professionals who have been tasked with implementing and working with SOX.
The first survey was conducted in 2002 and the second in 2006, The results were reported in 77?^ CPA Journal (November 2005 and July 2007). Perhaps the most intriguing conclusions from me authors' third study are as follows: I ) Only a third of the CFOs and almost half of the CPAs surveyed agree that the benefits of complying with SOX section 404 are greater than me costs; 2) over half of me CFOs reported that investors and creditors have more confidence in financial statements due to SOX: and 3) CFOs overwhelmingly believe that there should be no exclusion from compliance with section 404 for any publicly traded finn, regardless of size.
The first two studies surveyed CPAs engaged in public accounting, while the current study surveyed chief financial officers (CFOs) of Fortune 500 companies. A total of 43 usable responses were received, for a response rate of 9%. (While the response rale is relatively small, CFOs are very busy individuals and many have changed positions, especially given the current financial climate. As such, the authors consider the number of responses adequate for both analysis and extrapolation.) The results are depicted in Exhibits 1-4 and focus on four areas: auditing standards, client services, financial statements, and the perceived cost and benefits of section 404.
Exhibit I relates to the PCAOB and its auditing standards and compares CFOs' 2008 responses to those from CPAs in public accounting reported in 2007. A little over half of each group stated that the PCAOB has established auditing standards in a satisfactory manner. However, less than half of each group (and only 28% of CPAs) found the PCAOB's guidance in implementation of auditing standards to be sufficient. The final item in Exhibit 1 pertains to the appropriateness of the PCAOB's one-month comment period to review and submit comments on the exposure drafts of proposed auditing standards. Only a quarter or so of both groups (CPAs and CFOs) perceived the one-month time frame to respond as sufficient.
Exhibit 2 lists the responses of CFOs and CPAs regarding the restrictions that SOX imposes on client services when the firm also conducts the audit. In general, neither CFOs nor CPAs support auditing firms providing other client services. Furthermore. CFOs are less likely to favor the offering of nonaudit services than are CPAs in public accounting. For example, not one CFO believed that a pub- lic accounting finn should be allowed to perform bookkeeping or other services related to the client's accounting records while also performing the audit. In con- trast, nearly a quarter of the CPAs thought that providing those services should be allowed. The percentage of the CPAs who agreed that those services should be allowed (32%) was twice as large as the percentage of CFOs who agreed (16%). In addition, relatively few CFOs (16%) thought that an auditor should be allowed to perform actuarial services. In contrast, approximately a third of the CPAs thought that providing such services was appropriate. Furthermore, a scant 12% of CFOs agreed that the finn providing the external audit should also be able to provide internal auditing services. …