Some of the basic requirements of SOX include:
▪ CEO/CFO sign off on financial statements, and they are held responsible for accuracy
▪ Companies must assess their internal controls for effectiveness and issue reports of
findings, and auditors must do this for the company they audit as well
▪ Auditors of publicly traded companies must have a partner sign off on audit reports,
and lead auditors rotate on a 5 year basis
▪ Auditor firms are not to provide advisory services/consulting to any of their own clients
Companies do not specifically like section 404 because of the additional internal control audits
costing them more money, but audit companies tend to enjoy this because they are making
more money from their clients.
We are actually in the process of implementing many new internal controls at my job due to
the recent purchase of our company by Brinks, which is a public company, and we are seeing
an increase in spending on things due to these internal control applications so I definitely
understand on a first level basis why this is something that is often discussed in the topic. The
article I found talks about the benefits and costs related to SOX specifically related to small
firms. The authors don’t really take a stance, rather provide details from research that they
conducted to provide a few points. Research done determined, “(1) relative compliance costs
for small firms compared to those for large firms, (2) stock-price reactions, and (3) changes in
exit patterns from the public capital market” (Gates & Leuschner, 2007). Through their
research, they were seeing a significant issue with the costs related to SOX initially for small
firms, however there were many added benefits for these companies as well as many variables
that could change things, such as the stock market overall. It was shown that compliance costs
over time do decrease, which is likely to be a nice offset from the initial high cost to start. The
research showed that most companies leaving the market due to the SOX implementations
tended to be higher risk, possibly prone to financial misstatement, which actually leads to
better market overall. Overall, while small firms likely have a hard time with the cost of the
implementation, perseverance through the process and added controls tends to look better for
the company at the end of the day both from view of investors and financially as the costs
decrease over time.
Gates, S., & Leuschner, K. (2007). Do Benefits of Sarbanes-Oxley Justify the Costs? Retrieved
from https://doi.org/10.7249/RB9295
