Study Defends SOX Costs

A new study by the Staff of the Office of the Chief Accountant of the U.S. Securities and Exchange Commission recommends that mid-sized companies should still be subject to reporting requirements established by the Sarbanes-Oxley Act.

The report, which was mandated by Section 989G (b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, focused on the efficacy and compliance costs of SOX. Specifically, the report examined the Section 404(b) of the act, which requires auditors to sign off on internal control over financial reporting (ICFR) assessments and concluded that the investors’ protections engendered by the rules justified the compliance costs incurred by companies.

“The Staff believes that the existing investor protections for accelerated filers to comply with the auditor attestation provisions of Section 404(b) should be maintained,” the report states. “There is strong evidence that the auditor‘s role in auditing the effectiveness of ICFR improves the reliability of internal control disclosures and financial reporting overall and is useful to investors.”

Moreover, the report notes that the cost of complying with the law has come down since its inception. “The costs of Section 404(b) have declined since the Commission first implemented the requirements of Section 404, particularly in response to the 2007 reforms,” the report states.

The study also seeks to debunk a common criticism leveled at SOX, that the law has blunted the number of initial public offerings in the U.S. “There is not conclusive evidence linking the requirements of Section 404(b) to listing decisions of the studied range of issuers,” the report concludes.