The chairman of the Securities and Exchange Commission told Congress Thursday that the agency was weighing changes to reporting requirements for companies but rejected calls to weaken a landmark anti-fraud law.
"We should not minimize the cost to public companies" of new requirements under the 2002 law, William Donaldson said in testimony before the House Financial Services Committee.
However, he added, calls to weaken the law "are, in my judgment, unjustified."
Key requirements of the law born of corporate scandals are getting critical scrutiny nearly three years later as legions of companies complain that the rules are too burdensome and need to be eased.
As memories fade of CEOs being led off in handcuffs, the Enron and WorldCom bankruptcies, and consecutive-day plunges in the Dow averages, the chorus of complaints from all corners of corporate America has risen.
Smaller public companies have been the most vocal about what they say are the burdens and costs of the law, known as the Sarbanes-Oxley Act.
Executives have gotten a sympathetic ear in Congress, and the government's top securities and accounting regulators have said they plan to tweak the rules in a way that could lighten the perceived burden on companies.
The possibility of a legislative fix has been raised. Rep. Richard Baker, a member of the House committee, said at Thursday's hearing that flaws in the 2002 act "might necessarily require" legislative changes.
The law, which required the most far-reaching changes in corporate accountability since the Depression, created stiff new criminal penalties and jail terms for company fraud; installed new oversight of the accounting industry; required CEOs to personally certify their companies' financial reports; and held company directors responsible for new areas of corporate activities.
But it is the section of Sarbanes-Oxley requiring stronger internal financial controls that has raised protest from corporations.
Also testifying was William McDonough, chairman of the independent board created by Sarbanes-Oxley to oversee an accounting industry discredited by the wave of corporate scandals. He said the board plans to issue guidance in mid-May for accounting firms on making their reviews of companies' internal controls.
The guidelines from the Public Company Accounting Oversight Board will tell auditors, "It's not a one-size-fits-all; you're supposed to use judgment," McDonough said.
Presiding over the hearing was one of the two lawmakers whose names are imprinted on the law, committee chairman Rep. Michael Oxley, an Ohio Republican. He commended Donaldson and McDonough for having their agencies allow flexibility for companies and accounting firms in implementing the law's provisions.
In March, the SEC gave smaller U.S. corporations and all foreign companies whose stock trades on U.S. exchanges an extra year, until July 15, 2006, to meet the requirement to file reports on the strength of their internal controls.
