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Compliance Hotline

By ALM Staff | Law Journal Newsletters |

GAO Study Shows Higher Compliance Costs for Smaller Public Companies

In a report issued on May 8, the Government Accountability Office analyzed the impact of the Sarbanes-Oxley Act (SOX) on smaller public companies. The report focused on compliance costs; described suggested responses of the Securities and Exchange Commission and Public Company Accounting Oversight Board to concerns raised by smaller public companies; and analyzed smaller public companies' access to auditing services and the extent to which the share of public companies audited by mid-sized and small accounting firms has changed since SOX was passed. The report found that for smaller public companies ($700 million or less in market capitalization), the cost of compliance was disproportionately higher (as a percentage of revenues) than for large public companies, particularly with respect to the internal control reporting provisions in ' 404 and related audit fees. The report further stated that the costs associated with complying with SOX, along with other market factors, may be encouraging some companies to become private. Though the number of companies going private was small (2% of public companies in 2004), the full impact of SOX on smaller public companies remains unclear because most have not fully implemented ' 404.

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