Compliance With The Sarbanes-Oxley Act
Corporate Accountibility is closely linked to corporate governance in the respect that corporate accountability largely determines corporate governance.
On the other hand, compliance with the Sarbanes Oxley Act is expensive, and relatively more so for smaller public companies. While no doubt compliance with the SOX has improved transparency and corporate accountability, at what cost are these aims achieved? Already there are scathing critiques that compliance with the SOX has reduced America's international competitive edge against foreign financial service providers, saying SOX has introduced an overly complex regulatory environment into U.S. financial markets.
A survey by Korn/Ferry International showed that compliance with Sarbanes–Oxley
cost Fortune 500 companies an average of $5.1 million in compliance expenses in 2004, while a study by the law firm of Foley and Lardner found the Act increased costs associated with being a publicly held company by 130 percent."
The cost of complying with SOX 404 impacts smaller companies disproportionately, as there is a significant fixed cost involved in completing the assessment. For example, during 2004 U.S. companies with revenues exceeding $5 billion spent 0.06% of revenue on SOX compliance, while companies with less than $100 million in revenue spent 2.55%. This has therefore resulted in a significant drop in the registration of small firms and foreign companies in US stock exchanges, and a major increase in smaller public companies deciding to deregister from the Exchange as the compliance costs would cripple their operational survivability. A study by Wharton Business School indicated that the number of American companies deregistering from public stock exchanges nearly tripled during the year following the enactment of the Sarbanes-Oxley. The cost to the American economy as a result of the blowback is threefold. Not only has the financial edge that America possesses as the premier financial services market been eroded and hundreds of millions been lost to foreign markets, the SOX has effectively smothered the creation of new public companies. Also, it has the effect of severely damaging the venture capital business and discouraging entrepreneurship, thus moving the American economy from a production economy to a consumer economy.
In conclusion, the level of corporate accountability in public companies should be sufficient to ensure public confidence in financial institutions, and yet not be so overwhelming so that its costs and disadvantages far outweigh its benefits.
On the other hand, compliance with the Sarbanes Oxley Act is expensive, and relatively more so for smaller public companies. While no doubt compliance with the SOX has improved transparency and corporate accountability, at what cost are these aims achieved? Already there are scathing critiques that compliance with the SOX has reduced America's international competitive edge against foreign financial service providers, saying SOX has introduced an overly complex regulatory environment into U.S. financial markets.
A survey by Korn/Ferry International showed that compliance with Sarbanes–Oxley
cost Fortune 500 companies an average of $5.1 million in compliance expenses in 2004, while a study by the law firm of Foley and Lardner found the Act increased costs associated with being a publicly held company by 130 percent."
The cost of complying with SOX 404 impacts smaller companies disproportionately, as there is a significant fixed cost involved in completing the assessment. For example, during 2004 U.S. companies with revenues exceeding $5 billion spent 0.06% of revenue on SOX compliance, while companies with less than $100 million in revenue spent 2.55%. This has therefore resulted in a significant drop in the registration of small firms and foreign companies in US stock exchanges, and a major increase in smaller public companies deciding to deregister from the Exchange as the compliance costs would cripple their operational survivability. A study by Wharton Business School indicated that the number of American companies deregistering from public stock exchanges nearly tripled during the year following the enactment of the Sarbanes-Oxley. The cost to the American economy as a result of the blowback is threefold. Not only has the financial edge that America possesses as the premier financial services market been eroded and hundreds of millions been lost to foreign markets, the SOX has effectively smothered the creation of new public companies. Also, it has the effect of severely damaging the venture capital business and discouraging entrepreneurship, thus moving the American economy from a production economy to a consumer economy.
In conclusion, the level of corporate accountability in public companies should be sufficient to ensure public confidence in financial institutions, and yet not be so overwhelming so that its costs and disadvantages far outweigh its benefits.