Sox Article

Topics: Auditing, Internal control, Audit Pages: 2 (499 words) Published: April 18, 2013
Small and Large Firms Regulatory Costs: The Case of the Sarbanes-Oxley Act By James A. Millar and B. Wade Bowen

The article first begins with an introduction of how and why the Sarbanes-Oxley Act of 2002 (SOX) came about as a result of large scandals such as Enron and Tyco. Many companies believed that the costs of these new regulations exceeded the benefits, which is found prevalent with the addition of section 404 which required an auditor’s opinion on annual financial reports. In particular, the article is focused on the increased fees that are paid to a public companies external auditor as listed in the companies Schedule 14A filings with the Securities and Exchange Commission (SEC) and whether SOX has significantly increased public companies auditing expenses and the difference between these expenses from large and small companies. The findings of the article and the statistics is that both large and small public companies have significantly higher auditing costs, but smaller companies have in particular much higher auditing costs making it much more difficult for them to compete with larger more successful public companies. The main difference as to why this article is so compelling compared to others is because this article is one with empirical data from government agencies and statistics that directly correlate with the increased costs of auditing as a result of SOX.

Millar and Bowen then begin presenting statistical evidence to prove that SOC has made it much harder for smaller public companies to remain in the public sector due to the fact that compliance costs to small companies were greater than that of larger companies. Surveys and statistics found in multiple cases showed that companies had to reduce spending in other functional areas such as marketing and research in order to comply with SOX because the costs were too high. The lack of internal controls for many of these smaller companies also put them at a disadvantage for they have...
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