Student Imed Baghdadi
Business Economics GM 545
Professor: Ramiro Serrano
Question #15 Chapter 7 the Sarbanes-Oxley Act of 2002
One of the primary aims of the Sarbanes-Oxley Act of 2002, the New York Stock Exchange, and the NASDAQ corporate governance proposals is to improve the reporting systems for publicly traded companies. Many of the exchange proposals redefine the composition and duties of firms' boards of directors and their compensation and nominating committees. Sarbanes-Oxley places new duties on audit committees and provides oversight and restraints on public accounting companies.
Recent financial reporting scandals and the loss in market values weakened shareholder ...view middle of the document...
This, as well as general accounting rules that apply to all corporations, might strengthen public trust in the information that corporations offer the public. Third, general rules provide a level playing field for competitors. These reasons demonstrate the benefits of rules that apply uniformly to all relatively similar actors. However, in certain contexts, general rules impose high costs on honest corporations, as discussed below. In these circumstances the rules may reduce, if not eliminate, the benefits of general rules that apply to all.
Disadvantages of regulations that apply to all corporations are both over-inclusive and under-inclusive. Corporations may have particular and different problems that general regulations fail to address, especially if the regulations apply to the internal processes of the corporations. Whether a regulation is effective depends on the nature of the corporation and its history as well as the regulation itself.
The Act has increased the Costs of Compliance and has had a negative Effect on Small Companies. From 2001 to 2003 the annual cost of being a public firm for small public companies (those with annual revenues of less than $1 billion) increased 130% to $2.86 million. For larger companies (those with annual revenues of more than $1 billion) the cost increased to $7.4 million. Those costs have affected revenues and, of course, corporate profits. In addition, the aggregate corporate costs of compliance were projected to be $5.5 billion in 2004 $6.1 billion in 2005, $8.4 billion in 2006, and aggregate compliance costs for SOX and other regulations, with the cost of technology, could have risen to $38 billion in 2006, and rise even higher in 2007.
Even privately held companies must comply with the Act if they position themselves to be acquired. Because of the Act, small companies are less inclined to go public. They might reduce their hiring because of the costs associated with compliance that comes along with increased size. But can we see the NYSE or the NASDAQ will merge with...