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Against Sarbanes-Oxley Act. Golden Apples MBA 556:262 Accounting Prof. Dave Cooper 28 October 2008. Problems with SOX. SOX unduly burdens companies with high costs associated with auditing and reporting of finial statements

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against sarbanes oxley act

Against Sarbanes-Oxley Act

Golden Apples

MBA 556:262 Accounting

Prof. Dave Cooper

28 October 2008

problems with sox
Problems with SOX
  • SOX unduly burdens companies with high costs associated with auditing and reporting of finial statements
  • The federal security acts that were in place coupled with the power of the SEC made SOX unnecessary as it simply restructured these laws that began with the Security Act of 1933 due to the Stock Market Crash in 1929.
slide3

SOX does not address GAAP and the shortcomings within its principles that companies now have until 2016 to discontinue using GAAP and move to IFRS.

  • 54% of senior officers said they would refuse a promotion to CEO starting in 2002.
ethical issues
Ethical Issues
  • SOX does not provide the stated protection for whistleblowers. Providing protection, retaining position in the company with no ramifications.
  • Ethical reporting has been mandated with prior federal acts, and SEC contains the power to subpoena materials to investigate any companies for possible violations.
stock market issues
Stock Market Issues
  • Many companies are choosing to delist as a publicly traded company or simply remain a private company due to the cost of compliance to SOX. This number tripled in 2003 due to SOX.
  • U.S. stock markets have lost their appeal to Foreign investors and companies while the London Stock Exchange reaps the benefit.
  • SOX stifles business and the opportunity for investments as companies carefully consider whether to become publicly traded.
auditing auditors
Auditing/Auditors
  • Fewer financial institutions are available to handle audits because of the added accountability that they are being held to by SOX.
  • Smaller and mid-sized accounting firms are being driven out of audit work and leaving the large accounting firms to do the job which costs more for the companies.
auditing compliance
Auditing Compliance
  • 3 : 1 ratio of internal to external new compliance costs.

The following aspects of compliance were rated as at least somewhat costly:

  • Documentation (mentioned by 74% of respondents);
  • Legal requirements (72%);
  • Detailed policy development (65%);
  • Self-assessment (62%);
  • Attest requirements and certifications (59%);
  • Staff training (56%); and
  • Technology (41%).
auditing in 2004
Auditing in 2004
  • Approximately 12,000 hours of internal work, ranging from 1,150 to 35,000 hours;
  • 3,000 hours of external work, ranging from 846 to 6,197 hours;
  • Additional audit fees of $590,000, ranging from $52,000 to $1.5 million.
costs
Costs
  • In 2005, SOX costs approximately 20 times SEC’s estimated amount for businesses to implement and/or maintain.
  • Meeting SOX compliance in the IT department is requiring costly changes.
  • Small firms’ compliance costs are 2.5 % or more of annual revenues
cfo magazine survey
CFO Magazine Survey ?
  • IN AUGUST, CFO MAGAZINE E-MAILED a questionnaire on Sarbanes-Oxley compliance to senior financial executives drawn randomly from our circulation list. We received 220 responses; 139 from executives at publicly traded companies.

10) Overall, do you think the benefits of compliance outweigh the costs?

  • Yes 30%
  • No 70%