As special counsel to the Public Company Accounting Oversight Board, Mary Sjoquist works to formulate rules required by the Sarbanes-Oxley Act of 2002 and other policies affecting public accounting firms. Previously, she was a partner at the Patton Boggs LLP law firm in Washington, D.C. and she worked for four years at the Securities and Exchange Commission’s division of corporate finance. The Business Record spoke with her last week about Sarbanes-Oxley’s first year, whether the legislation is working and what effect it is having on smaller companies.

Q: Is Sarbanes-Oxley working?

A: There is a view that legislation is not going to replace ethics and I don’t think it will. On the other hand, it’s what we’re stuck with. Apparently the normal common law solution to fraud and situations that arose like Enron were simply not going to be fixed. Legislation lags problems. Sarbanes-Oxley came on the heels of a total public outrage. As a result, the legislation wasn’t as influenced by public interest groups. Congress listened to the people. This legislation is pretty darned far-reaching. What we’re doing here (at the Public Company Accounting Oversight Board) – we’re on a mission. But we can’t do it on our own. We’re really counting on accounting firms to right themselves. The response we’re getting from auditors is that they’re disgusted with the ways their businesses are run. I’ve talked to a lot of people who really hate to see their own profession in the position it’s gotten itself into. There’s a real belief that we have to fix it. Congress gave us a very big bark, and some would say a bite.

Q: What’s happening with small or private businesses? Are they adopting Sarbanes-Oxley’s rules? What about non-profit organizations?

A: This is a huge concern. I can tell you Bill McDonough (chairman of the Public Company Accounting Oversight Board) and the board are concerned aware of the impact of rules and regulations on small businesses. We’re also concerned about their impact on small accounting firms. We want them in the system. We don’t want the system to become more compacted. So far, there hasn’t been a mass exodus. For non-public companies, I suspect that investors are going to be interested in having some provisions of Sabanes-Oxley put in place. That’s true for non-profits as well. I think there will be some trickle-down effect. Do I think that’s bad? No. Will it be costly? No.

Q: What’s happened to pool of candidates for board membership?

A: The difficult part is finding people capable of sitting on audit committees, in particular finding a financial expert for the audit committee. Those people are harder to find. It could have a more severe effect on smaller companies, because there are just fewer of those people around.