Bye, bye, SOX?
Position | LEGISLATION - Sarbanes-Oxley Act |
The Sarbanes-Oxley Act (SOX) may be declawed by upcoming U.S. Congress and Supreme Court decisions.
The House of Representatives recently voted to approve the Garrett-Adler amendment, which would exempt small companies from SOX Section 404 provisions, while the Supreme Court is considering the constitutionality of the Public Company Accounting Oversight Board (PCAOB).
These developments may have long-term implications for SOX, the 2002 legislation passed in the wake of the Enron, WorldCom, and Tyco scandals. The outcomes may also have implications for records managers, information technology specialists, and compliance officers who devise and implement company controls.
Section 404 of SOX requires company auditors to attest to the soundness of the firm's internal controls and financial statements. Internal controls may include anything from transaction approval authorizations to records retention programs. This provision is widely blamed for an increase in auditors' fees, as well as increased expenditures to ensure that proper internal controls are in place.
Small firms--those with less than $75 million in market capitalization--have protested that compliance with SOX 404 would cost them a disproportionate share of their earnings. The complaint is supported by an independent study conducted at Pennsylvania State University, which showed that firms just over the $75 million mark paid nearly $700,000 more in audit fees and had average earnings of negative $1.4 million in 2004.
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The deadline for small firm SOX compliance has been extended four times, but they...
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