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The Sarbanes-Oxley Act Of 2002 (SOX)

768 Words4 Pages

SOX and Small Businesses Since the inception of the Sarbanes-Oxley Act of 2002 (SOX), publicly traded companies have had the burden of meeting the requirements of the act. Small businesses are the backbone of the U.S. and provides the majority of job growth for the country. The requirements of SOX have placed a significant financial burden on all public companies. There are advantages and disadvantages in almost everything, however, for small businesses SOX has affected them the most. The focus of this research is discussing the advantages and disadvantages of SOX in eliminating fraud and posit an author response of support or opposition to SOX. Advantages Significant reductions in fraud has been achieved due to the establishment of …show more content…

Small businesses are held to the same requirements as Fortune 500 companies and is out of all proportion. Millar & Bowen (2011) remarks the ‘one-size-fits-all’ method to regulate all public firms was inappropriate and that concessions and amendments are necessary for keeping small businesses in the public sector (p. 162). This compliance has created another issue of high costs of meeting the external auditing requirement. The cost of receiving an audit is extremely inflated and finding an auditing company with acceptable charges is almost nonexistent. Ghosh & Pawlewicz (2009) posits the decreased likelihood of misstated financial reports in small business has not curtailed the audit expenses due to the increased legal costs affiliated with audit failures (p. 175). While meeting the requirements of SOX, there are requirements of a Board of Directors size and makeup. This requirement is completely disproportionate between large and small business. Linck, Netter & Yang (2009) asserts, “Some of SOX's compliance costs are likely fixed. For example, board size does not increase linearly with firm size, so increases in director compensation may be relatively more burdensome for smaller firms” (p. 3295). Belief in compromise and making the SOX regulations proportionate will garner support, however, in its current existence I am in opposition of the SOX regulations. Although there are many benefits to SOX overall, the benefits do not justify its cost to small business. Proverbs 2:9 says, “For He guards the course of the just and protects the way of his faithful ones. Then you will understand what is right and just and fair—every good path” (NIV). Knowing what is right, just, and fair will aid you in your educated decision of

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