bITa Center

COMPANIES around the world are complaining about the costs and headaches of compliance, but Ernst & Young's global chief Jim Turley says it has turned investors into winners.

Mr Turley, the accounting firm's global chairman and chief executive, said the boom markets of the post-Enron era were in part the result of greater investor confidence.

And that was because regulators around the world had introduced tougher compliance regimes.

"We have come through a cycle where the public outcry over the scandals of four or five years ago drove increased focus on compliance," Mr Turley said.

"And if you look at the recovery of financial markets, there are a lot of different reasons why financial indices are near all-time highs, and M&A volumes are very high. But notwithstanding global security threats and higher energy costs, economies are very strong.

"Part of that is the confidence that comes from compliance."

"What you hear investors say is that it's our money being spent on compliance, not the company's money, and on balance we think it's being spent wisely and our interests are being protected."

However, Mr Turley, who is visiting Australia this week, acknowledged that the increased focus on compliance had also created companies that saw corporate governance as a matter of ticking boxes.

One example, he said, was the agonising over the increased workload for audit committees.

Five years ago these committees might have met four or five times a year, with each meeting running to no more than an hour. Now they were meeting 12 times a year and meetings were running up to five hours, he said.

"There is a lot of discussion about quantity and there is not enough discussion of the quality of the dialogue that's taking place and the quality of the oversight and diligence and effort.

"Without question, there is some sort of tick-the-box thinking that's taking place and red tape that is involved."

Mr Turley said Sarbanes-Oxley had helped transform the culture of many US companies.

Critics of the legislation claim that the tough audit rules are crippling American business, but Mr Turley is not buying into the debate.

"Our view is we are going to to try and implement whatever the requirements are. It's not our job to write it, it's our job to faithfully apply the rules. But … there have been positive cultural aspects coming out of it."

Accountants have also been the winners from tougher compliance and audit rules. Audit fees have soared, and accounting firms have been cashing in.

But Mr Turley said that was the cost of greater investor protection. "There's no question that the level of effort has gone up. Partly, that's because of the demand from investors for more risk protection. We have greatly increased demand for our services the world over, and that has resulted in more costs for clients."

Leon Gettler, August 25, 2006 / source it business edge