GAO Supports SOX Cost Claims
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A congressional committee has confirmed what many suspected:- smaller companies do pay more to comply with Sarbanes-Oxley. However benefits outweigh the one-time start-up costs. The report by the Government Accountability Office comes as the SEC is preparing hearings on the subject. Small and microcap companies have been vociferous in their lobbying to have the compliance requirements reduced. The deadline for meeting them has been extended since SOX was enacted in 2002. "Regulators, public companies, audit firms and investors generally agree" that the law has had "a positive and significant impact on investor protection and confidence" the report comments. This is despite the full costs of complying with the Act will not be apparent until next year. The SEC is not completely let off the hook. Regulations for smaller companies must be speciific enough for smaller companies create and strengthen internal controls at the lowest cost. Investors at the same time must be protected from the fraudulent practices that brought down WorldCom and Enron. The report is likely to be welcomed within the SEC and government. Smaller companies should have the same rules as larger ones, according to Chairman Christopher Cox. Sen. Paul Sarbanes, who gave his name to the Act considers there to be some leeway. Leeway and different rules does not mean exemption though. Cox, Sarbanes and other SEC officials have rejected calls for smaller companies to be exempted from Section 404. Indeed Scott Taub, SEC Chief Accountant last week gave a very robust defence of the rules in this area. In particular that smaller companies have higher costs, because they make compliance programs too onerous for themselves. The counter arguments are that companies are forced to go or remain private and their compliance costs are much heavier relative to their size.
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