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The Sarbanes-Oxley Act of 2002
What is the impact?
Two years after President George W. Bush signed the Sarbanes-Oxley
Act 2002 into law, Accounting professionals are still attempting
to assess the impact. Experts agree that the new regulations
have succeeded in increasing management’s knowledge about
the accounting process and internal-control structures. It
is also clear, however, that the new legislation has increased
expenses—particularly audit fees.
There’s a troll under the bridge
One of the unintentional
impacts of Sarbanes-Oxley Act 2002 has been the curious effect
on smaller companies on both sides of the “public domain bridge.” Figures indicate
that independent audit costs have increased between 15% and 40%
for smaller companies. Costs of directors’ and officers’ insurance
have also soared. Increases have topped 400% by some estimates. These
prohibitive expenses are keeping smaller companies from going public,
and on the other side of the equation, have forced many small and
microcap companies back into the private domain. It’s
as if there’s a troll under the bridge keeping all but the
larger, more established firms out of the public markets.
Benefits of Sarbanes-Oxley Act Compliance for Private Companies
While Sarbanes-Oxley
has increased regulations and exchange requirements for public
companies, private companies will be affected indirectly as well. Savvy,
proactive managers have realized that voluntary compliance with
the regulations could prove to be highly beneficial for privately-held
companies who hope for significant growth, who expect to go public
in the future, or who anticipate being acquired. Experts
anticipate that investors will be willing to pay a premium to invest
in or buy companies with sound financial practices. For this
reason, many smaller private companies have already begun to comply
with Sarbanes-Oxley Act 2002 because they expect that the future
benefits will outweigh current administrative costs.
Sources:
-
Mark Cecil. “Sarbanes-Oxley
Propels More Small Companies to Go Private.” Securities
Data Publishing Mergers and Acquisitions Report. www.usbx.com/experience/docs/MAReport-SarbanesMay03.pdf
- Journal of Accountancy. “Accounting
Experts Assess the Impact of Sarbanes-Oxley.” www.bowne.com/newsletters.asp?storyID=880&src=BFPfeature
- Amy Seidel. “Sarbanes-Oxley Compliance: Impact
on Private Companies.” Faegre and Benson. www.faegre.com/articles/article_1235.aspx
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