Someone posed a question somewhere about the burdensome Sarbanes-Oxley: Who (besides government) wanted it and why? He couldn't believe that accounting firms could make the case strong enough to get this piece of law through the pipeline.

The political truths are numerous, however, in a nutshell, one big thing to focus on is that the larger companies welcomed a gigantic government regulatory storm that would severely hamper their smaller competitors who could not so easily absorb the costs. The executives at the big companies understood that SOX made no distinction between big and small -- the same rules would apply to all.

The smaller companies did not have the personnel and the resources to conform to SOX regs. The time frame - for compliance - went against them as well. Large companies have CPAs running all over the place, and the smaller companies are typically staffed by unskilled clerical types, with a very small number of skilled accountants or finance people to manage it all. When you think of Sarbanes-Oxley in the trenches, this sort of disadvantage is huge. Small companies have had to spend small fortunes bringing on consulting teams, higher-paid CPAs, and larger staffs. Additionally, they have had to spend even more $$$$ tightening up internal controls after that. Small companies didn't have the manpower to get within the strict confines of SOX -- they tend to be weak on systems, record retention, segregation of duties, and management review. The costs to go from a small accounting operation that just does the accounting to one that can pass muster under SOX is very burdensome, and sometimes, undoable. The large companies, especially those with multiple consolidated divisions, enjoy an economy of scale with SOX while the little guys trudge along and reinvent the wheel on almost every aspect of SOX.

There have been studies - by various accounting organizations, etc. - that show that large cap companies spend $$$ on SOX compliance at a rate that is a much smaller percentage of revenue than small cap companies will spend -- affecting profit margins of these smaller companies much more painfully. Many of these small cap companies were forced to go private because they could not bear the costs.

Behemoths like GE and AIG and United Technologies nearly "bragged" about their ability to bear the costs and swiftly get into the compliance mode. The SOX costs barely hampered their ultimate financial goals.

In a related note, currently, in an attempt to stop foreign companies from de-listing from US exchanges and moving to overseas exchanges, the SEC is proposing to "ease" the rules that make foreign companies reconcile their financial statements with US GAAP rules. Foreign companies currently have to restate their financial results in US GAAP, or, they have to reconcile their financial results to US GAAP in a disclosure to the footnotes of the financial statements--which can be very cumbersome/expensive.

Of course, Sarbanes-Oxley is a huge reason companies are either not listing on the US exchanges, or they are de-listing and taking their business elsewhere. This whole notion of making the financial reporting process "easier" is just the SEC's way of saying, "Gee, we really mucked things up..."

Yesterday, Bloomberg interviewed SEC Chairman Christopher Cox on this issue.