Sarbanes-Oxley Act: Cost Benefit Analysis
Cost/Benefit Analysis of the Sarbanes-Oxley Act
Dariya Gogueva
Kaplan University
Cost/Benefit Analysis of the Sarbanes-Oxley Act
US Congress passed the Sarbanes – Oxley Act (SOX) in 2002 in response to massive corporate and accounting scandals in companies such as Enron, WorldCom, and Tyco. The purpose of SOX was to improve the corporate behavior in the US, in order to prevent fraud and to gain investors’ trust and confidence in the market by implementing rules and restrictions. Since SOX Act has been effective there are a lot of different opinions and debates on its necessity and whether benefits outweigh the costs. In this paper, I am going to analyze the costs and benefits of Sarbanes-Oxley Act and figure out whether …show more content…
The direct costs include expenses for internal control testing and reporting and audit fees to attest the audit effectiveness. These are most expensive cost of SOX, and they are in section 404. Securities Exchange Commission (SEC) has estimated the cost of the internal section 404 (a) for compliance and section 404 (b) cost of auditor attestation. The cost of compliance per filer is about $91,000. However, SEC did not do the estimation for the cost of audit certification. (Coates & Srinivasan, 2014). According to Coates & Srinivasan (2014, p16) direct cost has been falling for over the time from 15 present to 40 present, and it varies with a size of the company. The intangible indirect cost of SOX is going public. Since SOX Act became law, many businesses are going private because implementing SOX is costly for them. Also, the young growing companies in order grow and go public must seek extra sources of financing than their cost of capital will likely rise.
Conclusion
Even though the Sarbanes-Oxley Act is not perfect and has weak areas that need to improve, upon my research I found out that the benefits overweight the costs. Taking into consideration the benefits and costs I came to a conclusion that SOX Act is one of the most important Acts that made a positive change in business world by increasing accountability, reliability, transparency and by regaining stakeholder 's
Dariya Gogueva
Kaplan University
Cost/Benefit Analysis of the Sarbanes-Oxley Act
US Congress passed the Sarbanes – Oxley Act (SOX) in 2002 in response to massive corporate and accounting scandals in companies such as Enron, WorldCom, and Tyco. The purpose of SOX was to improve the corporate behavior in the US, in order to prevent fraud and to gain investors’ trust and confidence in the market by implementing rules and restrictions. Since SOX Act has been effective there are a lot of different opinions and debates on its necessity and whether benefits outweigh the costs. In this paper, I am going to analyze the costs and benefits of Sarbanes-Oxley Act and figure out whether …show more content…
The direct costs include expenses for internal control testing and reporting and audit fees to attest the audit effectiveness. These are most expensive cost of SOX, and they are in section 404. Securities Exchange Commission (SEC) has estimated the cost of the internal section 404 (a) for compliance and section 404 (b) cost of auditor attestation. The cost of compliance per filer is about $91,000. However, SEC did not do the estimation for the cost of audit certification. (Coates & Srinivasan, 2014). According to Coates & Srinivasan (2014, p16) direct cost has been falling for over the time from 15 present to 40 present, and it varies with a size of the company. The intangible indirect cost of SOX is going public. Since SOX Act became law, many businesses are going private because implementing SOX is costly for them. Also, the young growing companies in order grow and go public must seek extra sources of financing than their cost of capital will likely rise.
Conclusion
Even though the Sarbanes-Oxley Act is not perfect and has weak areas that need to improve, upon my research I found out that the benefits overweight the costs. Taking into consideration the benefits and costs I came to a conclusion that SOX Act is one of the most important Acts that made a positive change in business world by increasing accountability, reliability, transparency and by regaining stakeholder 's