US markets need accountability — it would be a mistake to dismantle Sarbanes-Oxley
Recently, the House Financial Services Committee approved a proposal to dissolve the Public Company Accounting Oversight Board, which supervises audits of publicly listed companies, and transfer its responsibilities to the Securities and Exchange Commission.
In times of economic uncertainty, the strength and integrity of our financial systems become even more crucial. Regardless of the outcome with the board, it would be a mistake to eliminate the broader Sarbanes-Oxley framework that has served as a foundation for market integrity since 2002. Dismantling these guardrails would increase the risk of financial reporting fraud that could trigger a crisis of confidence among investors and increased market volatility, putting trillions of dollars in market value and retirement savings at risk.
The bipartisan Sarbanes-Oxley Act was enacted in 2002 in the wake of a number of accounting scandals, most prominently Enron and WorldCom, which wiped out billions in market value and retirement savings. It passed with overwhelming support in both houses, reflecting the urgency lawmakers felt to address the crisis threatening our capital markets.
At its core, Sarbanes-Oxley established crucial guardrails. Section 404 requires companies to maintain robust internal controls over financial reporting, while Section 302 mandates that CEOs and CFOs personally certify the accuracy of financial statements. These provisions ensure that those who lead corporations are accountable for the integrity of their financial disclosures.
Sarbanes-Oxley also established independent oversight of auditors responsible for verifying financial statements. This provided essential third-party assurance that investors could trust what companies report — a crucial element in rebuilding market confidence.
Critics of Sarbanes-Oxley complain that compliance costs are a burden on businesses. While initial implementation was indeed expensive, companies have since learned to leverage technology and risk-based approaches to streamline the process. Research from firms like Protiviti and AuditBoard consistently shows that these costs have decreased over time as processes have become more efficient.
More importantly, we must weigh these costs against the benefits. The data is compelling: financial restatements, which initially surged after Sarbanes-Oxley implementation as companies 'cleaned up' their books, have shown a sustained downward trend.
According to the Center for Audit Quality, restatements rose sharply right after the law was enacted, to nearly 1,800 in 2006, but have generally trended downward overall since — with a substantial decline of 60 percent between 2006 and 2009. Restatements dropped 50 percent, from 858 restatements in 2013 to just 402 in 2022, XBRL reported.
America's capital markets remain the envy of the world precisely because investors trust them. Foreign companies willingly subject themselves to our rigorous standards because the resulting investor confidence translates into better valuations and capital access. This trust premium has contributed to trillions in market value growth over the past two decades.
As this regulatory reorganization is considered, we should ensure that any structural changes don't inadvertently weaken the broader framework of Sarbanes-Oxley that delivers accountability, transparency and investor protection. Instead, continued refinement of implementation and embracing technological innovations can make compliance more efficient without sacrificing effectiveness. The goal is evolution, not revolution.
Twenty-three years after its passage, Sarbanes-Oxley has become an integral part of America's financial architecture, contributing to a period of remarkable growth and stability in our capital markets. The political right and left came together to enact this landmark legislation because they recognized a fundamental truth: without trustworthy financial reporting, markets cannot function effectively.
Today, that core principle remains unchanged. While organizational structures may evolve, preserving the integrity of Sarbanes-Oxley's core principles isn't just good for investors — it's essential for America's continued economic leadership.
Richard Chambers worked in auditing in the U.S. Government Accountability Office. He is currently CEO of Richard F. Chambers and Associates and senior adviser at AuditBoard.
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Should you invest in crypto now?
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The answer will be highly personal, driven by your risk tolerance, time horizon and knowledge. Despite being a crypto advocate, Tyrone Ross, founder of financial planning firm 401 Financial, put it this way: 'We have a long way to go before you should be YOLO-ing your way into crypto.' When financial advisers have been asked over the past several years whether they would recommend that clients invest in bitcoin or other cryptocurrencies, many were reluctant because digital assets were not regulated, pricing was highly volatile and their use case and valuation was hard for both adviser and client to understand. Unlike stocks, which can be valued on the basis of tangible components such a company's goods and services, bitcoin is considered a store of value, and its price is driven by what others are willing to pay for it. 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A far safer route for the novice crypto investor, he and Edelman said, is through an SEC-regulated bitcoin ETF. Not everyone is as immediately bullish as Edelman. In a March note to clients, TIAA chief investment officer Niladri Mukherjee said, 'While broadening enthusiasm around crypto adoption and the bitcoin ETFs are an encouraging sign for the industry, from an investment perspective, its value drivers will take time to develop and to be well understood by market participants.' Given that the industry is still 'quite opaque and unregulated,' Mukherjee added that individuals should do their due diligence before investing. But even before you do that, gut check yourself. When asked who absolutely should not invest in crypto, Edelman was quick to reply: 'Those who cannot emotionally tolerate volatility. Because we know (cryptocurrencies are) highly volatile. You're likely to sell when prices are low.' That's especially the case if you decide to invest directly in a given coin. 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8 hours ago
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Much has changed in the crypto landscape over the past year and a half. And with it, so may more investors' minds about cryptocurrencies — especially bitcoin, the (very young) granddaddy of them all. Crucially, crypto has gained greater acceptance among regulators and large institutional investors as an asset class that is likely here to stay. The Securities and Exchange Commission now regulates spot bitcoin and ethereum exchange-traded funds. Coinbase, the crypto currency exchange, is now on the S&P 500. Stablecoin provider Circle just went public. The Trump administration, meanwhile, is very supportive of crypto, and the Labor Department just rescinded its 2022 guidance urging 401(k) fiduciaries to 'exercise extreme care' if they include a crypto investment option to plan participants. With bitcoin now trading above $100,000 and US lawmakers actively working on crypto regulations, it may be worth revisiting the question of whether you should have exposure in your portfolio. The answer will be highly personal, driven by your risk tolerance, time horizon and knowledge. Despite being a crypto advocate, Tyrone Ross, founder of financial planning firm 401 Financial, put it this way: 'We have a long way to go before you should be YOLO-ing your way into crypto.' When financial advisers have been asked over the past several years whether they would recommend that clients invest in bitcoin or other cryptocurrencies, many were reluctant because digital assets were not regulated, pricing was highly volatile and their use case and valuation was hard for both adviser and client to understand. Unlike stocks, which can be valued on the basis of tangible components such a company's goods and services, bitcoin is considered a store of value, and its price is driven by what others are willing to pay for it. That caution was understandable, said Ric Edelman, who founded Edelman Financial Engines and then created the Digital Assets Council of Financial Professionals, which provides certification courses in blockchain and digital assets for financial professionals and investors. But, at this point, Edelman believes that advisers who value diversification as a strategy in their clients' portfolio — eg, across asset classes, sectors, etc. — would be remiss not to recommend adding at least a small amount of digital asset exposure. 'They ought to be cautious. But being cautious doesn't mean abstinence,' he noted. 'We've seen bitcoin reach all-time highs and seen institutional investors engage for the first time.' Several years ago, when crypto's future was far less certain, Edelman had recommended a 1% asset allocation to crypto, an amount small enough that even if a crypto investment fell to zero it would not greatly harm the long-term trajectory of a person's portfolio. In March this year, using bitcoin as an example, he compared the performance of a balanced 60% stocks/40% bonds portfolio with an average annual return of 7% over a decade, to a portfolio where the equity portion is reduced to 59% in favor of a 1% investment in bitcoin. In the extreme, if bitcoin became worthless the average return would only drop to 6.9%. And, equally extreme, if the price rose to $1 million, the return would increase to 7.4%. If the equity portion were reduced to 57% with 3% put into bitcoin, the average return drops to 6.8% in the worthless scenario and jumps to 8.2% if bitcoin hits $1 million. If bitcoin exposure were upped to 5%, the downside return would be 6.7% and the upside return would be 9%. Despite bitcoin trading around $100,000 — a nosebleed level relative to where it had fallen during the so-called crypto winter of 2022 — Edelman believes that the price still has a lot of upward potential because the number of bitcoins is permanently limited and demand for it is increasing. For those who have yet to invest in crypto and would like to, 'the best place to begin is bitcoin,' Edelman said. 'It is by the far the largest digital asset — and it's the digital asset of choice for institutional investors.' And, he added, 'it's different than all other digital assets. It's a store of value and a transmittal (instrument). All the others are designed for specific commercial uses and it's far less certain as to which of the others will be successful.' But investing directly in bitcoin and storing it in your own wallet can be a complicated proposition unless you know what you're doing. 'Scams are a big issue in this space,' Ross said. A far safer route for the novice crypto investor, he and Edelman said, is through an SEC-regulated bitcoin ETF. Not everyone is as immediately bullish as Edelman. In a March note to clients, TIAA chief investment officer Niladri Mukherjee said, 'While broadening enthusiasm around crypto adoption and the bitcoin ETFs are an encouraging sign for the industry, from an investment perspective, its value drivers will take time to develop and to be well understood by market participants.' Given that the industry is still 'quite opaque and unregulated,' Mukherjee added that individuals should do their due diligence before investing. But even before you do that, gut check yourself. When asked who absolutely should not invest in crypto, Edelman was quick to reply: 'Those who cannot emotionally tolerate volatility. Because we know (cryptocurrencies are) highly volatile. You're likely to sell when prices are low.' That's especially the case if you decide to invest directly in a given coin. A good way to test your appetite for volatility is to consider how much you might spend on a nice meal at a favorite restaurant and invest that amount into crypto if it doesn't strain your household budget. Then just watch to see what happens over the next several months, Ross said. 'Track it, read about it, understand its ebbs and flows.' In other words, educate yourself about how things work before making any real commitment to it. Then if you think you're comfortable enough, you might invest small amounts monthly — again, nothing that would compromise you financially, he suggested. In terms of an overall allocation of your assets, Lazetta Rainey Braxton, founder of the financial planning firm The Real Wealth Coterie, said you want an amount that is small enough that it won't undermine the valuation of your portfolio if things go south. And, she added, '(stick) with players that are well known and respected and have the infrastructure in place to make sure that they are offering a solid investment and also the information associated with that.' Trent Porter, a certified financial planner and certified public accountant at Priority Financial Partners, is not a big fan of crypto even with all the developments in recent months easing investment in the space. 'My core advice remains unchanged: Crypto exposure should match an investor's personal risk tolerance and capacity, keeping the allocation small (no more than 5%) for most people. Regulatory risk might have eased, but market risk is still very real, and as we all know, the regulatory environment can change quickly.'
