As one commentator has stated, the presence of two different sets of accounting rules, each plagued by imprecision and subject to multiple interpretations, gives corporations "two different bites at the apple." (6) What used to be seen as an economically advantageous distinction between tax and financial accounting may now be considered a "credibility gap." (7) (Whitaker, 2005, p. 680)
There have of coarse also been historical defenders of the book-tax gap who are concerned that if tax liability is to closely linked to reported financial statements, the corporate tax lobby might attempt to attack and dissolve the Financial Accounting Standards Board, which has been funded to a large degree and voluntarily by accounting firms and the business community. Sarbanes-Oxley attempted to eradicate this problem by developing a new funding structure, which replaced the old system by replacing these voluntary funds with mandatory fees gleaned from securities issuers.
As the staff of the Senate Banking, Housing, and Urban Affairs Committee explained, the Act sought both "to formalize the SEC's reliance on the FASB" and "to strengthen [its] independence... By assuring the funding and eliminating any need for it to seek contributions from accounting firms or companies whose financial statements must conform to [its] rules." (163) in the new conformed system, the government should maintain this scheme for funding the FASB. (164) With the added protections of the new system's regulatory limits on congressional authority, this scheme will insulate the FASB sufficiently from political pressures to prevent legislators from eroding the tax base as they have done under the current tax code. (Whitaker, 2005, p.680)
Whitaker also contends that it is illogical for the FASB to operate completely outside the political body and that any extreme change in the book-tax system is rather unlikely as the government would then be handing a significant amount of control to businesses.
Congress is unlikely to cede the authority to set the standards for government revenue collection completely to the private sector. (165)... The SEC already has broad authority to regulate financial accounting, most of which it has delegated to private-sector bodies. And as early as 1939, SEC Chairman Jerome Frank noted: We want to be sure that the public never has reason to lose faith in the reports of public accountants.... I understand that certain groups in the profession are moving ahead in good stride... But if we find that they are... unable... To do the job thoroughly we won't hesitate to step in to the full extent of our statutory powers. (167)
(Whitaker, 2005, p.680)
The final discussion of perceived outcomes of these new securities laws, in the corporate tax area, are brief discussions of two other ways SOX can potentially alter the manner in which business has been conducted in the past. First it is clear the government now has the authority to remove inventory tax shelters, of services allowances.
Retailers of all kinds receive money from manufacturers not only for slotting allowances, but also for purchase volume rebates and cooperative advertising allowances. The tax treatment of these promotion allowances has spawned a debate between retailers and the IRS. Some of the controversy arises from timing issues such as when payment is received and when claims are submitted, but IRS efforts to accelerate the taxation of these allowances usually is tied to its position that they are for services rendered by the retailer. (Maples, 2005, p. 91)
Finally, one of the last of the pressing issues with regard to the changes and potentialities of stepping into a post Enron future is the issue of whether the securities laws will be altered again to require that publicly traded businesses make public their tax returns. It has been the historical stand that businesses and individual should share the same right to privacy with regard to tax information, yet scandals have raised this issue once again, with some arguing that SOX left out a crucial practice, when it did not alter this area of taxation and others arguing that the privacy of businesses should continue to be maintained. It is clearly still up for debate:
The American Taxation Association has formed a committee to investigate whether or not it would be prudent to require these companies to make their tax return available for public inspection (as some not-for-profits make their 990's available to donors on request). (Chambers & Crowley, 2003, p. 44)
The manner in which Serbanes-Oxley alters the individual arena of taxation is also significant, as many forms of non-cash employee compensation have changed, not the least of which is the traditional allowance of corporations to offer employees tax free compensation, in protected accounts or as premiums on insurance policies, which creates an interesting shift and additional controversy.
The premium payments -- once tax-free to the employee -- are included in the employee's income and treated as loans. And employees have to pay taxes on the policy's equity at termination and on the cash value. At the same time, Sarbanes-Oxley classifies corporate split-dollar life insurance premium payments as loans because they generally have been interest-free loans to executives for the life of the arrangement. Under the act top executives no longer can receive loans from their employers, making these arrangements unworkable for public companies. (Dennis, 2004, p. 59)
It is clear that many in the insurance and accounting industries are still seeking clarification about the finer points of this potential conflict regarding split-dollar arrangement and insurance premium payments. In fact many are counseling their publicly held corporations to cease making these payments until clarification arrives, so as not to risk violating the principle of the laws.
(Alexander & Brody, 2003, p. 95)
In conclusion, Sarbanes-Oxley has made significant strides toward a system that leaves fewer honest people in a position to be unwitting conspirators in scandalous financial practices, as well as driving dishonest people, in accountancy and otherwise, either out of business or out of unscrupulous financial practices. Though many will continue to argue that the act goes to far toward government control of free enterprise there are also many who argue that the act is a good faith statement on the part of the federal government to make businesses more accountable for the way they keep and hold funds. On a final positive note one issue that may arise, as a boon to the accountancy industry is that corporations who choose not to continue to provide accounting services for executives and other high ranking business associates will be creating a whole new set of clients for smaller firms, who might never have received such business in the past. This situation may give a much needed boost to these smaller firms and also allow them to hone the skills of their employees to meet growing needs for individual tax functions, stock options accountancy and other benefit situations that require tax knowledge. (Dennis, 2004, p. 22)
Alexander, N., & Brody, L. (2003). Split-Dollar Redux: CPAs May Find the Benefits a Thing of the Past. Journal of Accountancy, 195(6), 95.
Carpenter, T.D., Fennema, M., Fretwell, P.Z., & Hillison, W. (2004). A Changing Corporate Culture: How Companies Are Adjusting to Sarbanes-Oxley. Journal of Accountancy, 197(3), 57.
Chambers, V., & Crowley, P. (2003). Capitalism and Accounting Reform. SAM Advanced Management Journal, 68(3), 44.
Dennis, a. (2004). Small Firms: Think Big! More Work at Large Firms Means More Opportunity for Smaller Ones. Journal of Accountancy, 197(6), 22.
Dennis, a. (2004). What's Next in Corporate Pay Practices? An Enhanced Role for Compensation Committees and a Hard Look at Stock Options Are in the Offing. Journal of Accountancy, 198(1), 59.