The Business Roundtable, with 160 of the largest U.S. companies, says its members paid $10 million each on Sarbanes-Oxley (SOX) compliance in 2004. Section 404 of the SOX has caused greater-than-anticipated personnel, consulting, auditing, and software expenses, according to a survey by Financial Executives International. In the survey, 94% of corporate execs say the costs of SOX exceed the benefits.
SOX’ Section 404 forces firms to document internal control systems using vague and arbitrary procedures. This provision of SOX is wreaking havoc, causing nearly 300 publicly traded firms to miss deadlines for filing their first quarter annual reports (up from 70 last year).
A Barrons report ($) tells the story of Max and Erma’s Restaurants, an Ohio company with $1.1 million in 2004 profits, having to spend $350,000 on SOX compliance. The small business, like many others, is now considering de-listing to avoid SOX requirements. Says the firm’s CFO: “Congress has made one of the biggest changes ever to the capital markets, and it does not realize what it has done.” Sarbanes-Oxley passed 99-0 in the Senate and 423-3 in the House.