With the economy still reeling from the string of recent business accounting scandals highlighted by the $7.2 billion accounting fraud at WorldCom, the Securities and Exchange Commission has begun implementing the Sarbanes-Oxley Act, intended to create better corporate governance. Among other things, the new law requires the creation of a five-member Public Company Accounting Oversight Board, responsible for regulating the accountants who audit public companies. It also expands the definition of obstruction of justice and increases maximum sentences for those who violate securities laws.
A July 26-28 Gallup survey* shows that a majority of Americans (63%) say they are "not too confident" (41%) or "not at all confident" (22%) that an accounting firm's audit of a major corporation will be accurate. Roughly a third of the American public (35%) expresses confidence that such audits yield accurate results, with just 3% giving "very confident" as their response. These findings are significantly more negative than when Gallup first asked about accounting accuracy in February 2002 and represent a shift in attitudes. At that time, 56% expressed confidence in the accuracy of accounting audits and 42% said they were not confident.
Older Americans are more likely than younger Americans to be skeptical of audit accuracy. More than four in 10 18- to 29-year-olds (44%) express confidence in corporate accounting accuracy, compared to 40% of 30- to 49-year-olds, 28% of 50- to 64-year-olds and just 19% of those aged 65 and older. Republicans are also more confident than Democrats, by a margin of 46% to 27%.
The general lack of public confidence indicates a call for reform. The scale on which the public expects changes to be made is startling. The same July 2002 survey found nearly a third of the public (28%) saying that there should be a complete overhaul of the way large corporations are audited. An additional 43% believe major reforms are needed. Two in 10 Americans (22%) say minor reforms are needed and just 3% think no reforms are necessary. Again, the July results represent growing public concern about this issue, as just 17% thought a major overhaul was necessary in February.
The same age and party differences persist regarding reforms. Just 10% of 18- to 29-year-olds think a complete overhaul of corporate auditing practices is required, compared to 26% of 30- to 49-year-olds, 35% of 50- to 64-year-olds, and 43% of those aged 65 or older. Among Republicans, 23% call for a complete overhaul, compared to nearly four in 10 Democrats (39%) who think such an extreme measure is necessary.
Gallup polling indicates that the reforms being implemented in response to the Sarbanes-Oxley Act are coming not a moment too soon. The public has little confidence in the ways that large corporations are audited and has called for major reform. Whether the Sarbanes-Oxley Act will go far enough to relieve the public's worries about corporate auditing remains to be seen.
*Results based on telephone interviews with 1,004 national adults, aged 18 and older, conducted July 26-28, 2002. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±3%.