Conflict over the scope and expense of the control reviews has produced severe friction between auditors and some of their clients, experts say. That comes in marked contrast to the pre-Enron era, when corporate finance chiefs routinely socialized with their independent auditors. In that sense, investor groups say, the corporate responsibility law is having a positive effect in promoting skepticism among auditors.
Auditors are approaching the reviews with extreme caution because they know their judgment will be scrutinized by the oversight board and may possibly be subject to lawsuits from shareholders, according to a letter sent to regulators by accounting firm Ernst & Young LLP.
The law sponsored by Sen. Paul S. Sarbanes (D-Md.), left, and Rep. Michael G. Oxley (R-Ohio) frustrates some companies.
That frustrates corporate finance officers , who are responsible for signing off on the control reviews and managing expenses.
"Senators Sarbanes and Oxley should have to spend one month in any company trying to comply with the unclear and monotonous requirements being imposed by the Big Four auditors," wrote John E. Kyees, the finance chief at Urban Outfitters Inc., in a March 31 letter to the SEC. "Only then will they understand the nightmare they have created."
Other trade groups pointed out that companies have few choices nowadays when selecting an auditor, since only four large accounting firms have the scope to conduct international audits. Even the audit world's Big Four were unprepared to meet the law's requirements , wrote Tracy Mullin, chief executive of the National Retail Federation.
"We have heard complaints of tax professionals performing the SOX work, of auditors arriving in the field unsure of what to do, and of independent auditors starting the entire Section 404 assessment too late in the year," Mullin wrote. "SOX" is corporate shorthand for the Sarbanes-Oxley law, and Section 404 is the provision that requires companies to vouch for the adequacy of internal controls.
Financial Executives International, a trade group of corporate finance officials, went even further, citing the "transfer of wealth from shareholders to audit firms" as a result of Sarbanes-Oxley-induced fees. FEI suggested that the Big Four accounting firms, which are privately held, be forced to open their own books to the public for review.
Contributing to the equation is another part of the 2002 law that limits the kinds of work that auditors can perform, cutting off once-lucrative sources of business. Audit fees had declined in the 1990s as firms competed to win more expensive consulting and tax business from clients. Accounting firms also have sharply reduced their marketing of tax shelters to wealthy individuals and corporations, a business that once brought in tens of millions of dollars, amid intense regulatory scrutiny.
The Big Four so far have resisted public inspection of their finances, but the firms each posted double-digit profit increases last year, according to news releases.
Corporate resistance to the regulatory drive persists -- and not just because of the expense. The American Enterprise Institute, a conservative think tank, this month published a report criticizing accounting firms and regulators for trying to foster "public confidence" in the markets. Rather, wrote Alex J. Pollock, investors should approach financial reports with skepticism because they are based on ever-changing estimates.
But to Deloitte & Touche, the complaints are coming so loudly because the reforms may have touched a nerve.
"The very intensity of some of the current protest against the burdens of Section 404 suggests that the new standard is working as intended," the firm wrote in an April 1 letter to regulators.