SOX and errors

Previously, I have mentioned the numerous accounting restatements related to leases in the restaurant industry (here is a recent letter by the SEC's Chief Accountant clarifying some of the issues). These restatements seem to have been brought on by the compliance requirements of SOX 404. Many in practice have suggested that SOX may not provide any benefit or that its cost outstrips its benefit (for a discussion of both sides, see this debate).

For an example of how SOX made an extreme difference for one company and its investors, take a look at Sirva and its recent press release providing earnings guidance. Sirva had been projecting earnings of $.15 - $.17 per share, but due to finding errors in its insurance and European dividsions as a result of SOX 404 it is now projecting losses of ($.16)-($.20) per share. Here is one of the relevant paragraphs from the release:

In the fourth quarter of 2004, the company commenced a thorough review of its accounting practices and significant balance sheet accounts, which has led to the identification of $21 million to $25 million pre-tax, or $0.18 to $0.22 per fully diluted share, of charges in its Insurance and European operations. The review was undertaken in connection with implementing procedures to comply with Section 404 of the Sarbanes-Oxley Act, the disappointing performance of the company’s Insurance and European businesses in the third quarter of 2004, and as part of its year-end closing process.