Cost & Benefits of Sarbanes-Oxley Act
There are many debates related to the cost and the benefits of the act. The supporters of this act claimed that it was absolutely essential and played a main role in rebuilding the public’s trust in the U.S. stock markets, and in strengthening the corporate accounting principles. On the other hand, the opponents argued that since SOX, the complex regulation, was enacted, U.S. financial service providers lost their competitive edge against foreign providers (Chan, Farrell, & Lee, 2008). The supporters of this act claimed that the benefits of SOX are greater than the cost and vice versa.
Cost of Sarbanes-Oxley Act
Sarbanes–Oxley has been criticized as a very expensive regulatory overreaction (Coates, 2007). …show more content…
While the cost associated with implementation and compliance with SOX can be quantified, it is very difficult to measure and quantify for the benefits that come along with SOX (Jahmani & Dowling, 2008). According to Suraj Srinivasan from Harvard Business School, “Markets have been able to use the information to assess companies more effectively, managers have improved internal processes, and the internal control testing has become more cost-effective over time.” (Hanna, 2014). Steve Schwarzman, CEO of private-equity juggernaut Blackstone, recently said that “Sarbanes-Oxley is probably the best thing that 's happened to our business and one of the worst things that has happened to America” (Serwer, 2006). Michael Gallagher, chairman of the Professional Practice Executive Committee of the Center for Audit Quality, which is affiliated with the AICPA, said that “he saw the positive impact of SOX every day in his job as a managing partner of PricewaterhouseCoopers’ audit quality functions”. Gallagher said “SOX has led to fewer financial restatements, improved disclosures, and earlier identification of fraud”. He said that “it serves capital markets and investors well” (Tysiac, 2012). A 2005 survey by the Financial Executives Research Foundation also established that 83 percent of large company CFOs agreed that SOX had improved investor confidence, with 33 percent …show more content…
Increasing in disclosure of material weakness in internal control increased transparency of financial reporting. Section 404 is very expensive to comply but on other hand, it is very beneficial since its purpose is to eliminate management overrides that had occurred in the past. It can be reasonably assured that the transactions were properly carried out the way that they were supposed to when the companies test internal control and provide the disclosures. The number of adverse SOX section 404 auditor attestation opinions has been declining over time. The rate had been as high as 16.9 percent in 2005 and went down to 2.4 percent in 2010 (Coates & Srinivasan, SOX after Ten Years: A Multidisciplinary Review, 2014). According to a survey of the WSJ, section 404 has improved accounting quality and internal controls (The Big Number,
There are many debates related to the cost and the benefits of the act. The supporters of this act claimed that it was absolutely essential and played a main role in rebuilding the public’s trust in the U.S. stock markets, and in strengthening the corporate accounting principles. On the other hand, the opponents argued that since SOX, the complex regulation, was enacted, U.S. financial service providers lost their competitive edge against foreign providers (Chan, Farrell, & Lee, 2008). The supporters of this act claimed that the benefits of SOX are greater than the cost and vice versa.
Cost of Sarbanes-Oxley Act
Sarbanes–Oxley has been criticized as a very expensive regulatory overreaction (Coates, 2007). …show more content…
While the cost associated with implementation and compliance with SOX can be quantified, it is very difficult to measure and quantify for the benefits that come along with SOX (Jahmani & Dowling, 2008). According to Suraj Srinivasan from Harvard Business School, “Markets have been able to use the information to assess companies more effectively, managers have improved internal processes, and the internal control testing has become more cost-effective over time.” (Hanna, 2014). Steve Schwarzman, CEO of private-equity juggernaut Blackstone, recently said that “Sarbanes-Oxley is probably the best thing that 's happened to our business and one of the worst things that has happened to America” (Serwer, 2006). Michael Gallagher, chairman of the Professional Practice Executive Committee of the Center for Audit Quality, which is affiliated with the AICPA, said that “he saw the positive impact of SOX every day in his job as a managing partner of PricewaterhouseCoopers’ audit quality functions”. Gallagher said “SOX has led to fewer financial restatements, improved disclosures, and earlier identification of fraud”. He said that “it serves capital markets and investors well” (Tysiac, 2012). A 2005 survey by the Financial Executives Research Foundation also established that 83 percent of large company CFOs agreed that SOX had improved investor confidence, with 33 percent …show more content…
Increasing in disclosure of material weakness in internal control increased transparency of financial reporting. Section 404 is very expensive to comply but on other hand, it is very beneficial since its purpose is to eliminate management overrides that had occurred in the past. It can be reasonably assured that the transactions were properly carried out the way that they were supposed to when the companies test internal control and provide the disclosures. The number of adverse SOX section 404 auditor attestation opinions has been declining over time. The rate had been as high as 16.9 percent in 2005 and went down to 2.4 percent in 2010 (Coates & Srinivasan, SOX after Ten Years: A Multidisciplinary Review, 2014). According to a survey of the WSJ, section 404 has improved accounting quality and internal controls (The Big Number,