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Sarbanes-Oxley Has Been an Accountant’s Bonanza

Sarbanes-Oxley Has Been an Accountant’s Bonanza

by Rick Turoczy on April 24, 2006

Let us start with the most obvious unintended results. Sarbanes-Oxley implementation activities, particularly the Section 404 certifications which have become notorious, have created a tremendously expensive amount of paperwork and bureaucracy. The explicit costs alone are extremely high and disproportionately high for smaller companies. The implicit costs of employee and management time and effort are high. In addition, there are the opportunity costs of diversion of management focus from playing offense to playing defense.

The total costs far outweigh the benefits which are likely to arise from them, especially for smaller companies.

This is especially true because the testimony of history is quite clear on the reliable regularity with which frauds and scandals accompany investment booms and bubbles. In my opinion, the detailed rules, bureaucratic overhead, and mechanical requirements which characterize Sarbanes-Oxley implementation will not prevent fraud and scandal during the next boom when it comes.

In a typical view of its Sarbanes-Oxley experience, frankly expressed, one smaller company’s letter to the SEC describes the following: “concentration on minutia . . . redundant and inefficient . . . adversarial relationship with audit firm . . . form over function . . . unrealistic requirements on small and developing companies.” It further points out that the cost of all this, which far exceeded the estimates, is of course money taken away from its shareholders.

Sarbanes-Oxley Has Been an Accountant’s Bonanza

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