The Sarbanes-Oxley act of 2002 is long and complicated, but was
pivotal in helping to ensure accurate and transparent financial
reporting. The basic requirements are that the senior officers of an
organization sign off on financial statements certifying their accuracy
and compliance to SEC reporting requirements. Section 404
specifically require managers and auditors to set up internal controls
and ways to measure the accuracy and effectiveness of those
controls.
The criticism I chose is the impact of SOX on small companies. The
authors of the article I chose criticizes the high costs that SOX has
some small business, but also points out that they could reap higher
benefits. The biggest issue that small businesses run into with
complying to SOX is the costs. Compared to larger corporations, small
businesses may have a harder time finding the funds or staff needed
to establish and maintain the internal controls required by SOX.
Another, smaller, concern that the article mentions is that it isn't easy
to find directors to serve for the company. This is due to the
heightened liability exposure and tightened independence standards,
and small business' lack of distinguishability compared to larger
companies. The benefit of SOX for small businesses that was noted is
that these companies are prone to inaccuracies due to limited
resources, but likely won't be as heavily scrutinized.
Reference:
Kamar, E., Karaca-Mandic, P., & Talley, E. (2007). Sarbanes-Oxley’s
Effects on Small Firms: What Is the Evidence? In S. M. Gates & K. J.
Leuschner (Eds.),
In the Name of Entrepreneurship?: The Logic and
Effects of Special Regulatory Treatment for Small Business
(1st ed.,
pp. 143–168). RAND Corporation.
http://www.jstor.org/stable/10.7249/mg663emkf.12
