Sarbanes-Oxley act of 2002 is deemed to be the most important piece of legislation since formation of Security and Exchange Commission of 1934. Legislation was passed right after the burst of high tech bubble and fraud scandals of giants like Enron and WorldCom. This legislation was passed to restore faith of investors, but many businesses felt like it was politically driven over-correction and would lead to decrease in risk taking and competition. When you need tax audit services Jacksonville call us!
There are many companies that can say they have not really learned anything by applying required procedures of Sarbanes-Oxley act, but some say they have learned a great deal and have reevaluated risks to their business and found some of the processes currently in place are ineffective and inefficient. The greatest draw back to the SOX act is the cost to the company. Currently companies have learned more about the requirements and have been able to reduce the costs by trimming some of the key controls that were not required, but were originally through to be required. We do tax audit services Jacksonville .
Positive effect of the SOX act is that it helped companies design better and more efficient system of internal controls and information flowing out of the companies is more accurate. This in turn makes investors more confident and they are more likely to invest . Call our company for tax audit services Jacksonville .
The other positive effect of the SOX act is the strengthening of the audit committee. The act brought forward better oversight and the audit committees have taken on more responsibilities. Also the audit committee is now required to have one financial expert that serves as a mediator between the auditor and the company.
The biggest thing that act had brought forward was the IT issues that many CFO’s and CEO’s have never paid much attention to in the past. Control overrides were not on the forefront of the issues that CFO’s or CEO’s dealt with.
Negative effect of the SOX is that it was passed with very little guidance to the companies; so many companies had to intrepid the legislation to the best of their ability. They implemented many unnecessary controls which were very expensive. There is still a different interpretation between SEC and PCAOB. They say that they want the process to become more efficient, yet when they conduct audits; they are very detailed which does not help auditors reduce their efforts. When you need tax audit services Jacksonville call us! The other negative effect of the act is that companies can no longer look to their auditor to advise them on complicated reporting issues. Auditor’s independence is emphasized in the act. Auditors can no longer provide consulting services to their clients. On one hand this part of the legislation eliminates the issues with auditors wanting to please their clients with giving them unqualified opinion, on the other hand, some clients have grown to rely on their auditors to help them with complicated financial issues. Legislation separates the duties of the auditors from consulting or even tax work. Tax return preparation by the same firm that is conducting an audit is subject to an approval. We are your tax audit services Jacksonville .
Because of increasing responsibilities of the audit committee, many bright individuals are no longer interested in serving. The answers many companies get is “we will serve on the board, but not the audit committee”. Serving on the audit committee now involves more frequent meetings, overlooking the management’s decisions with respect to internal controls, choosing auditors and putting your reputation on the line. Many people who are well qualified do not want additional responsibility or increased risk. We are the best tax audit services Jacksonville .
Smaller companies that are not subject to SOX and are audited by the big four are paying much higher fees for their audits and the audit itself has become a slow and painful process. The big four have designed their audits to serve the companies that are subject to SOX and follow the same guidelines for the smaller companies. The audit fees have increased from .64% of the revenue on the smaller firms with revenues up to 75,000,000 to 1.14% which is a huge burden on the smaller companies. Many small companies with cap of 15,000,000 have gone private and left the stock market, that trend has increased by 53% after the SOX was passed.
In my personal opinion Sarbanes-Oxley act of 2002 has been positive in many ways and negative in others. I think it is necessary to have proper regulations in place that will assure proper and accurate reporting to the investors. I also believe that the audit firms should be independent and remove temptation of the audit firms to issue inappropriate opinion because they want to please the client. I also believe that internal controls are necessary and benefit companies as well as provide assurance to the investors that fraud is less likely to be committed. As necessary as this regulation is there should be something in place to lessen the burdens on the smaller companies. Big four have generally been the biggest auditing firms for public sector, but unfortunately the way they design the audits and the costs could be hard to absorb for smaller companies. If it was easier for mid-size CPA firms to become registered and approved to conduct those audits for smaller public companies, the costs can be saved. The other issue with the act is clarity. Even ten years after the act was passed, there was still much confusion as to the requirements. I think there should clarity. Laws and regulations are hard to interpret at times and everyone seems to have their own interpretation as to how this law should put into practice. Although some defined procedures have emerged and have been agreed upon by everyone, some are still vague and unclear. Call us for all your tax audit services Jacksonville .
Burczyk, A. (2007, May 17). What are the biggest pros and cons of Sarbanes-Oxley legislation? Kansas City Business Journal.
Goelzer, D. L. (2005, March 21). The Costs and Benefits of Sarbanes-Oxley Section 404. Retrieved October 23, 2014, from http://pcaobus.org: http://pcaobus.org/News/Speech/Pages/03212005_GoelzerCostsBenefitsofSOX404.aspx
Hanna, J. (2014). The Costs and Benefits of Saranes-Oxley . Forbes.
Kamar, E. (2007). Do the Benefits of Sarbanes-Oxley Justify the Costs? Retrieved October 24, 20114, from www.rand.org: http://www.rand.org/pubs/research_briefs/RB9295/index1.html
Sherman, D. (2009). The Audit Committee’s New Agenda. Harward Business Reveiw.
Tysiac, K. (2012). Corporate governance best preactices 10 years after SOX. Journal of Accountancy.
Tysiac, K. (2012). SOX’s anniversary marked with congressinal debate on benefits and costs. Journal of Accountancy.