The Costs of Sarbanes Oxley

Sarbanes Oxley Act, commonly known as SOX or SarbOx, is the single most important piece of legislation approved by the U.S. House of Representatives and the senate in 2002.The law affects corporate boards, financial disclosure and the general practice of public accounting. It sets new accountability standards and criminal penalties for corporate management.

The quantity of money a business spends complying with the SOX Act depends on the extent of its current procedures, organization, and technology. Analysts complain that it is difficult to estimate the total cost. The 2004 statistics show that a typical corporation spends $4.6 million in 2004 on Sarbanes Oxley, plus an additional 38 percent for future audits.

Sarbanes Oxley law imposes expensive compliance burdens on small and mid-size companies. The act makes audit and accounting practices highly expensive. The requirement of SOX has about double the cost audits, which is generally around 2.5 percent or more of a small firm's annual revenue. Big companies can afford to such high costs, but they are much harder for a small company to digest. This affects them negatively in developing and flourishing. While SOX has made problem, it has also created opportunities.

It is advisable that businesses use compliance projects to streamline their processes with the help of business process reengineering efforts. There are many services which help you evaluate the typical cost of complying with the Sarbanes Oxley Act in the United States. Most of them provide a handy standard computation sheet on their websites, which you can use to work out your own costs of SOX compliance. You can also purchase the spreadsheet at a small charge.