Implications of the Sarbanes-Oxley
Act for Public Companies and the U.S. Banking Industry
The fall of several high-flying corporations, such as Enron,
Tyco, and WorldCom
in 2001 and 2002, resulted in the collapse of employee pension plans,
a drastic devaluation of corporate stock, a decline in investor confidence,
and a scrambling by legislators and regulators to restore the public’s
confidence. These events prompted many to ask how these corporate abuses
could happen. The mid-1990s had been characterized by strong corporate
growth, more aggressive risk taking by some managers, and a generally
profitable corporate sector, with only 70 public company bankruptcy filings
in 1994. However, by the early 2000s, the tide had turned, and public
company bankruptcies peaked at 257 in 2001.1
Corporate governance generally can be defined as the process of managing
an organization’s affairs or ensuring accountability. It can include
a range of activities, such as setting business strategies and objectives,
determining risk appetite, establishing culture and values, developing
internal policies, and monitoring performance. Corporate fairness, transparency,
and accountability commonly are viewed as goals of corporate governance.
To some, corporate governance simply means more active and involved participation
by the board of directors; others emphasize corporate “democracy”
or broader shareholder participation.
In the wake of widespread abuse and corporate scandal, corporate governance
issues emerged as the focal point for reform. Lawmakers and the administration
moved quickly to stem the damage to investor confidence with the enactment
of the Sarbanes-Oxley Act of 2002 (SOX). The rationale behind enactment
of SOX was to strengthen public financial reporting, improve internal
control processes, ensure auditor independence, and make corporate decision
makers responsible for their actions. This article provides an overview
of the SOX legislation, reviews key areas of study that have emerged since
the legislation was enacted, assesses the implications and costs of SOX
for public companies and FDIC-insured institutions, and summarizes new
regulations and standards implemented as part of other corporate governance
reform initiatives (see the box on page 19, “Other Recent Corporate
Overview of the Sarbanes-Oxley Act of 2002
Following the recent corporate scandals and the resulting demand for greater
transparency and increased integrity in financial reporting, Congress
and the administration wanted to help assure stakeholders that public
companies were operating in a sound manner. Therefore, SOX provisions
focus on the implementation of sound corporate governance practices. Two
of the more frequently cited sections of SOX are Section 404, which addresses
management’s responsibility for establishing sound internal controls
and assessing the effectiveness of these controls, and Section 302, which
requires company chief executive officers (CEOs) and chief financial officers
(CFOs) to certify the accuracy of company financial statements. Key provisions
of the SOX legislation are summarized below.
Impact of SOX on the Corporate Sector
Three distinct areas of analysis and study have emerged since enactment
of the SOX legislation: 1) the effect on compliance costs, 2) the effect
on the quality of corporate earnings and the level of earnings management,
and 3) the effect on firm and managerial behavior. Even though the research
on SOX is preliminary, the historical impact of SOX and the effects of
several large corporate scandals can be assessed by looking at changes
in stock prices following certain significant events.
Recent reports suggest that compliance costs for public companies are
ratcheting upward. Financial Executives International (FEI),
a research firm focusing on the business community, surveyed 217 public
companies with average revenues of $5 billion. The survey results show
spending on SOX-related services averaged $4.4 million during 2004, eclipsing
the $3.1 million these firms expected to spend on compliance-related issues.2
In addition, the results indicate that compliance with Section 404 of
SOX has spurred most of the increase. About 39 percent of compliance costs
are for external services such as consulting, while 30 percent are earmarked
for auditing fees. A separate survey of Fortune 1000 firms found that
these companies spent an average of $7.8 million on SOX compliance in
2004.3 About a quarter of these costs were
related to audit fees, consistent with the results of the FEI survey.
In a widely cited research paper on the economic implications of SOX,
Ivy Xiying Zhang of the University of Rochester
measured returns to stock prices on key legislative dates, ranging from
the introduction of SOX in congressional committee to enactment of the
bill, and found a large abnormal loss for companies on these dates.4
Tallying the losses, Zhang’s research showed the net private costs
of compliance with Section 404 were about $1.4 trillion and concluded
that investors perceived the purchase of nonaudit services and investment
in internal controls as costly.
Executives have expressed mixed feelings about the costs and benefits
of compliance with SOX. A survey conducted during first quarter 2005 by
Foley & Lardner, a national law firm providing
interdisciplinary services to global corporations, shows that 38 percent
of private company executives believe the costs equal the benefits.5
Interestingly, 29 percent responded that the benefits outweigh the costs,
while almost the same share (28 percent) believe the costs exceed the
benefits. Mixed results were also found in the FEI study cited above.
Although 55 percent of respondents to the FEI survey believe SOX increased
investors’ confidence with financial statements, the vast majority
(94 percent) also believe the costs of complying with SOX exceed the benefits.
Finally, a survey by the Risk Management Association
found that 59 percent of financial services firms believe SOX has “greatly”
or “somewhat” helped management to implement an operational
risk program that would minimize the risk of losses from inadequate internal
processes and systems or from external events.6
Although survey results suggest that the enactment of SOX is beginning
to boost investor confidence, opportunity costs also must be considered.
The SOX legislation contains numerous compliance requirements that force
corporate management to shift resources away from product development
or customer service activities. Costs also are attributed to learning
new systems and internal controls, complying with strict timelines, and
overseeing the work of others to deter fraud. Company executives are responsible
for certifying the accuracy of company financial reports and may face
penalties and fines for issuing misleading statements. This environment
could prompt management to become more risk averse and, as a result, constrain
product development and innovation.7
Earnings management is a term commonly used to describe the use
of generally accepted accounting principles (GAAP) to control how a company’s
financial statements are reported. For example, managers can use various
methods for recording inventories and depreciation that can have the effect
of smoothing reported earnings across time. Researchers have tried to
determine if SOX has improved the reliability of financial statements.
Gerald Lobo of the University of Houston and
Jian Zhou of the State University of New York– Binghamton
found that earnings management declined during the year when CEOs and
CFOs certified the accuracy of their company’s financial statements.8
Firms most likely to certify early fell into a larger asset size category,
reported higher quality earnings, and had a higher percentage of institutional
shareholders. However, other research concludes that CEO and CFO certification
did not affect stock prices, suggesting that investors perceived no benefit
from the certification process. Uptal Bhattacharya, Peter Groznik, and
Bruce Haslem of Indiana University studied the
market reaction of firms that began to certify their results and found
the market did not react to the news of financial statement certification.9
In a separate study, Northwestern University
professors Daniel Cohen, Aiyesha Dey, and Thomas Z. Lys examined earnings
management behavior, measured by accruals, for more than 6,000 firms.
They determined that earnings management increased through the 1990s but
declined after the enactment of SOX.10 However,
these researchers stop short of concluding that earnings management declined
only because of the enactment of SOX. Rather, other events, such as the
corporate scandals of the early 2000s, also are contributing factors.
To date, a paucity of data clouds the impact of SOX on earnings management,
and this area will benefit from additional research.
the Public Company Accounting Oversight Board (PCAOB)
with responsibility for overseeing the actions of public
accounting firms. The PCAOB oversees the auditors of public
companies; protects the interests of investors; and supports
the preparation of informative, accurate, and independent
auditor standards—requires audit partner
rotation, provides guidance on audit committee reporting
responsibilities, places restrictions on hiring external
audit staff to avoid auditor/client conflicts of interest,
and permits state regulators to determine whether PCAOB
standards should apply to smaller accounting firms.
management standards—outlines audit committee
standards, requires CEOs and CFOs to certify the accuracy
of financial statements, prohibits management from attempting
to influence an audit, establishes guidelines and penalties
for certain inappropriate actions by officers and directors,
bars persons who violated certain Securities and Exchange
Commission (SEC) regulations from serving as corporate officers
or directors, and prohibits insider-trading violations.
appropriate disclosures—requires accurate
material disclosures in reports, restricts personal loans
to executives, requires internal control disclosures in
annual reports, provides for timely disclosure based on
material changes in a company’s financial position,
and details the extent of financial expertise on the audit
Another line of study
has examined managerial behavior and executive compensation contracts.
The results of some of the analysis suggest a direct relationship between
managerial contracts and the incidence of corporate fraud.12
Firms whose executives had contracts with higher equity-based compensation
relative to total compensation were more likely to experience fraud. However,
the adjustment in managerial compensation following the enactment of SOX
may have influenced how corporations make investment decisions. A paper
by researchers at Northwestern University indicates that incentive compensation
relative to total compensation declined following implementation of the
SOX provisions.13 Furthermore, after controlling
for macroeconomic effects such as gross domestic product (GDP) growth,
the data show that expenditures on research and development, as well as
capital expenditures, also declined.
SOX also has influenced company decisions about whether to issue equity
shares to the public or to remain privately held. Researchers at the University
of Chicago found that the frequency of firms going private
increased following passage of SOX.14 However,
firms most likely to go private were smaller and characterized by a greater
percentage of insider ownership. For firms that go public, registration
and compliance costs have risen in recent years. Foley & Lardner estimate
that SOX requirements and the costs of listing on stock exchanges have
doubled since 2002 to an average of $2.3 million for firms with market
capitalization less than $900 million.15
In addition, the SOX legislation is affecting merger and acquisition (M&A)
activity. For some companies, selling to a larger company has been easier
and less costly than trying to take the company public, either because
of compliance costs or the inability to receive analyst attention.16
In a roundtable sponsored by PricewaterhouseCoopers
in spring 2004, leading M&A executives said SOX-related issues are
emerging in merger negotiations.17 For example,
targets that have been slow to comply with Sections 302 and 404 have led
to postponement of deals that otherwise would have been considered acceptable.
Panelists also noted that due diligence was becoming more complicated
and was lengthening the process of closing deals.
The Cost of SOX Compliance for FDIC-Insured
In the case of FDIC-insured depository institutions that issue equity
shares to the public, SOX compliance costs vary with institution asset
size, operating controls, management experience and staffing levels, financial
condition, local economic conditions, and the institution’s product
offerings. However, regardless of the size and type of institution, some
published studies show that overall compliance costs have increased since
the enactment of SOX.
An article in the
May 2005 issue of US Banker states that the
costs of complying with SOX can reach as high as $2 million for publicly
traded community banks. The article concludes that these costs are becoming
a significant factor in some banks’ decisions to go private and
avoid SEC reporting requirements. “To add $1 million to $2 million
in costs—with no income to show for it—makes a huge difference.
Community banks are having a hard enough time with compliance anyway,”
observes Patrick D. Daugherty, a partner with Foley & Lardner, who
was interviewed for the US Banker article.18
A May 2005 ABA Banking Journal article estimates
that compliance costs specifically related to legal, audit, Section 404
consulting, and administrative activities may exceed $500,000 annually
for a community bank.19
The American Bankers Association (ABA) estimates
that auditing expenses of community banks in the mid-Atlantic states tripled
from $193,000 in 2003 to $600,000 in 2004.20
Finally, the results of a survey conducted by the Independent
Community Bankers of America (ICBA) from December 1, 2004,
to February 25, 2005, show that the average outside Section 404 compliance
costs of publicly traded community banks total slightly more than $202,000.21
Although Call Report data do not specifically
break out SOX-related compliance costs, such expenses are included as
part of commercial bank noninterest or overhead expense. Total overhead
expenses have been increasing at large and small commercial banks, a trend
that may offer some insight into the impact of complying with provisions
of the SOX legislation.22 For larger commercial
banks (holding assets greater than $500 million), total overhead expenses
doubled from $122 billion in 1995 to an annualized $246 billion by the
first half of 2005.
Although the dollar volume of overhead expenses increased among
large commercial banks, the ratio of overhead expenses to average assets
tells a different story. This ratio reflects how well a bank is managing
overhead expenses as a percentage of average assets, and it actually dropped
52 basis points from June 30, 1995, through June 30, 2005. Much of this
improvement occurred during the past three years and is attributed to
the “other noninterest expense” component of total noninterest
expense.23 A closer look at the components
of this ratio sheds light on trends in expense and asset growth for large
banks. During the past ten years, overhead expenses grew at an average
annual rate of 7.33 percent, possibly a reflection of higher SOX-related
compliance costs, while the growth in average assets averaged 8.65 percent.
This more rapid growth rate may be masking the potential effects of higher
expenses for these institutions.
banks also are reporting lower overhead expense ratios. However, the improvement
in this ratio during the past decade was less than that of larger commercial
banks, largely because of a slower growth rate in average assets (see
Chart 2). Again, most of the improvement occurred in recent years and
was attributed to other noninterest expenses. During the past ten years,
total overhead expenses have remained relatively stable for smaller institutions—around
$27 billion. However, average assets have grown more dramatically—from
$775 billion in 1995 to slightly more than $800 billion in 2003, totaling
$840 billion by the first half of 2005. The growth in average assets has
outpaced the growth in noninterest expenses, helping to explain the decline
in the overhead expense to average assets ratio, despite the added compliance
costs that may be attributed to the enactment of SOX.
Although commercial banks are reporting improvement in their overhead
ratios, some banks, particularly smaller publicly traded banks, are considering
strategies that would exempt them from complying with SOX, such as going
private.24 Since January 2003, banking institutions
have filed more than 40 “going-private” transactions.25
An article published by the Federal Reserve Bank of Richmond
discusses SOX compliance costs and previews the challenges one bank, Darlington
County Bancshares, faced with the going-private decision.26
The advantages of going private include greater management flexibility,
fewer reporting requirements, fewer resources devoted to compliance, and
more efficient use of capital. This strategy has its disadvantages, however,
such as limited access to the capital markets; costs of going private,
such as legal fees; greater exposure to unsolicited takeover offers; and
fewer control procedures, which could expose an institution to resource
Governance for FDIC-Insured Institutions
FDIC-insured institutions, corporate governance determines
how management and boards of directors set corporate objectives,
run daily operations, consider stakeholder or shareholder
interests, ensure safe and sound operations, comply with applicable
laws and regulations, and protect the interests of depositors.
Insured financial institutions are operating in an increasingly
complex and rapidly changing environment. Bank management
and directors must know how to fulfill their fiduciary responsibilities
in a manner that will ensure the institution’s stability
and soundness. Although not specifically developed in response
to the SOX legislation, the FDIC’s Pocket
Guide for Directors offers timely guidance and
suggestions for an institution’s board of directors:27
and retain competent management.
with management, the institution’s long- and short-term
business objectives, and adopt operating policies to achieve
these objectives in a legal and sound manner.
operations to ensure they are controlled adequately and
are in compliance with laws and policies.
the institution’s business performance.
the institution helps to meet its community’s credit
independence when overseeing and evaluating management’s
actions and competence.
informed about the activities and condition of the institution
and the economic and business environment in which it operates.
the daily operations of the institution are in the hands
of qualified management.
management by establishing clearly communicated written
policies that address all significant activities, monitoring
the development and implementation of management reports,
providing for independent reviews and testing of compliance
with board policies and procedures, and heeding supervisory
preferential transactions involving insiders.
Discussion continues among policymakers and legislators about the effectiveness
and costs of SOX. Comments that appear in the text box on the following
page show that the effects of this legislation continue to be hotly debated,
raising the possibility of future legislative changes to the provisions
of the Act. In fact, in late March 2005 the ABA proposed some degree of
regulatory relief for corporations, including small banks and businesses.
The two-part proposal, submitted to the SEC, recommends increasing the
shareholder threshold for companies governed by SEC reporting requirements,
as well as reexamining the audit of internal control testing required
by SOX.28 Also in March, the ICBA urged the
SEC and PCAOB to exempt community banks with total assets less than $1
billion from compliance with Section 404.29
In addition, Representative Jeff Flake (R-Arizona) introduced a proposal
in mid-April 2005 that would make compliance with Section 404 of SOX voluntary.30
Overall, the enactment of the SOX legislation has pushed the corporate
governance debate to the fore, and this debate is unlikely to be resolved
in the near term.
prominent policymakers have criticized SOX and are calling
attention to possible negative consequences. The views of
two dissenters, in their own words, appear below.
Alex Pollock, Resident Fellow at the American
Enterprise Institute and former President and Chief Executive
Officer of the Federal Home Loan Bank of Chicago,
believes “there’s no doubt that this [SOX] is
tremendously costly. We don’t know exactly how much.
Estimates range from millions of dollars per firm for large
firms and many billions of dollars in the aggregate. The implicit
costs of diversion of employee and management behavior are
high. The accounting and legal costs are high. Virtually every
audit committee around the country is watching its audit fees
escalate by huge amounts, going up as much as 50 to 100 percent.
And, as we’ll get to later, the opportunity costs are
also very high, although it is very hard to know exactly how
high. Whatever these costs are, in general we know they are
disproportionately higher for smaller companies.”
Mr. Pollock suggests three reforms to “reduce the net
economic cost, the cost in excess of the benefits, of Sarbanes-Oxley.
With regard to governance by boards of directors, there is
only one reform that I think is really meaningful. That is
ensuring significant stock ownership by all directors. Second,
regulatory reform. The SEC and the PCAOB have to acknowledge
their own role in creating the morass of Sarbanes-Oxley cost
and bureaucracy, not just blame it on the accountants, and
then try to write more sensible, balanced rules. And thirdly,
Congress should acknowledge its own role in creating Sarbanes-Oxley.
They did something in a hurry, subject to a lot of political
fear. The best effort that I’m aware of to fix Sarbanes-Oxley
is a two-page bill introduced by Congressman Jeff Flake, a
Republican of Arizona, which I recommend to everybody.”31
Peter J. Wallison, a Resident Fellow at the American
Enterprise Institute and former Counsel to President Ronald
Reagan and General Counsel to the U.S. Treasury Department,
believes SOX stresses the wrong aspects of financial profiling.
He states, “In adopting the act, Congress acted hastily,
without adequate thought, and apparently without an understanding
of the problem it was seeking to address.
“In reality, the underlying cause of the collapse of
investor confidence was the recognition that audited financial
statements prepared under GAAP or any other system of financial
statement preparation currently in use could never give a
completely accurate picture of the prospects of public companies.
As a result, the appropriate policy for Congress would have
been to diminish the importance of audited financial statements
by encouraging the disclosure of information that is more
useful to investors and less subject to manipulation by corporate
“There is a consensus among financial experts that companies
are valued, not on the basis of their audited earnings, but
on the basis of their current and estimated future cash flows.
“For this reason, Sarbanes-Oxley’s sole focus
on audited earnings as the key to corporate financial disclosure
was wholly misplaced. After Enron, WorldCom and others, Congress
and many investors were concerned about the accuracy of financial
statements. The correct solution was not to create a massive
regulatory structure to improve the auditing process but to
encourage companies and the SEC to develop methods that will
provide investors with information on company cash flows,
making it easier for analysts and investors to understand
how effectively and efficiently the company is able to generate
has its ardent advocates. Views of several prominent SOX supporters,
also in their own words, appear below.
Former Federal Reserve Board Chairman Paul Volcker
and former SEC Chairman Arthur Levitt Jr. state
in a policy paper that appeared June 14, 2004, in the Wall
Street Journal, “measures to reform the
auditing profession and to assure its independence were central
elements of the new legislation. Complementing them were strong
new corporate governance rules ranging from who can sit on
their boards and audit committees to new and clear responsibilities
for internal controls and the accuracy of financial reports.
These reforms were long overdue, and have made companies more
transparent and accountable to shareholders. We are under
no illusion that complying with Sarbanes-Oxley and other new
regulations will come for free; financial and managerial effort
as well as money is required. But we believe that those costs
are justified in light of the benefits—the price necessary
to pay for more reliability in accounting, clear accountability
to shareholders, and more robust and trusted markets. We should
not let the relatively quick rebound of the markets induce
a collective amnesia toward the real pain and loss that investors
suffered, or blind us to the critical role that Sarbanes-Oxley
has played in restoring investor confidence and strengthening
our free market system. While there are direct money costs
involved in compliance, we believe that an investment in good
corporate governance, professional integrity, and transparency
will pay dividends in the form of investor confidence, more
efficient markets, and more market participation for years
William H. Donaldson, who recently stepped down
as Chairman of the SEC, believes SOX restores
consumer confidence in the stock market and creates healthy
business practices. He states, “It is already clear
that Section 404 is helping to strengthen the business operations
of these U.S. and foreign issues who have seized the opportunity
to use the internal controls assessment as a managerial opportunity
and not simply a compliance exercise.”34
Treasury Secretary John W. Snow,
when asked if Congress should modify SOX, responded that “Sarbanes-Oxley
was critically important legislation that met a real need
for the country at the time of those scandals. Sarbanes-Oxley
played a very important role in reaffirming the norms of good
corporate behavior, and, in some ways, I think [it] was absolutely
essential. Corporate capitalism depends on trust.” Treasury
Secretary Snow concedes aggressive politicians and investors
may rush to “criminalize innocent mistakes,” leaving
little room for companies to feel assured they can make such
mistakes. “The nature of business is that you aren’t
always going to be right.”35
George David, United Technologies Chairman and
CEO, states, “Sarbanes-Oxley is not bad.
We redid 30,000 financial processes in the company to meet
the regulations. We spent $40 million on it last year, though
we’ll spend less in 2005. Ultimately, it makes the company
better. There’s no silver bullet here. People think
you can write a new regulation, and there will be no WorldCom,
Enron, or Tyco. That’s not true. How long has the criminal
justice system been in place? We can improve regulations,
but problems will still come up. We have a very good system
of governance in the [average] American company. We have better
governance than in most parts of the world. Everybody is anxious
about [getting rid of] problems. It’s a hazard that
won’t go away.”36
Other Recent Corporate Governance Reforms
in corporate governance systems in the early 2000s precipitated
the enactment of the Sarbanes-Oxley Act, but this piece of
legislation was not debated and implemented in a vacuum. At
the same time SOX was being implemented, other corporate governance
changes were in the making, as many policymakers and industry
leaders recognized the need for a concerted reform effort
that would strengthen corporate governance and restore the
public’s confidence. These reform initiatives are far-reaching
and extend to some highly visible organizations in the nation’s
financial services sector—the NASDAQ Stock Market Inc.
(NASDAQ) and the New York Stock Exchange (NYSE), the American
Institute of Certified Public Accountants (AICPA), the Financial
Accounting Foundation (FAF), and the Financial Accounting
Standards Board (FASB). Key corporate governance rules and
standards implemented by these groups are summarized below.
The NYSE standards require that independent directors comprise
a majority of a company’s board of directors; the audit,
compensation, and nominating committees remain independent;
companies develop an internal audit function; members adopt
a code of business conduct and ethics; and stockholders vote
on stock option plans and any material changes to these plans.
The NASDAQ standards mandate that the majority of corporate
board members be independent, the authority of audit committees
be expanded, the role of independent directors in compensation
and nomination decisions be strengthened, shareholders approve
all stock option plans, companies develop codes of conduct,
and companies promptly disclose insider stock deals for transactions
The AICPA issued guidance to help auditors detect misstatements
resulting from fraud. In addition, the AICPA implemented standards
to enhance the quality control processes and procedures of
U.S. audit firms. These standards were issued following the
collapse of Enron—during a time when many public companies
were seeking new audit firms. AICPA members also granted the
professional association greater flexibility to ensure that
it can act in the public interest should a member violate
the accounting profession’s code of ethics.
Changes implemented by the FAF, which oversees the FASB, attempt
to improve the efficiency of the FASB rulemaking process,
as the FASB had been criticized for delays in issuing new
accounting standards. Under these new operating procedures,
the voting requirement of the seven-member FASB board was
streamlined from a supermajority to a simple majority. In
addition, FASB shortened the proposed rule comment period
as a means of expediting the issuance of new accounting guidance
and standards. The failure of Enron, which had several off-balance-sheet
partnerships with guarantee provisions, prompted the FASB
to issue guidance for variable-interest entities and guarantees.
This guidance addresses accounting requirements for a variety
of investment and financial enterprises and requires a company
entering into a guarantee agreement to record an upfront liability.
Robert E. Basinger,
Senior Financial Analyst
Daniel F. Benton, Intern
Mary L. Garner, Senior Financial Analyst
Lynne S. Montgomery, Senior Financial Analyst
Nathan H. Powell, Financial Economist
1.Bankruptcy Week. January 10, 2005.http://www.BankruptcyData.com.
2. FEI Survey on SOX Section 404 Implementation. March 2005. http://www.fei.org/news/press.cfm.
3. Charles River Associates. April 2005. Sarbanes-Oxley Section 404 Costs and Remediation of Deficiencies: Estimates from a Sample of Fortune 1000 Companies. http://www.sec.gov/spotlight/soxcomp/soxcomp-all-attach.pdf 196kb (PDF Help).
4. Zhang, Ivy Xiying. June 2005. Economic Consequences of the Sarbanes-Oxley Act of 2002. AEI-Brookings Joint Center for Policy Research. http://www.aei.brookings.org/admin/authorpdfs/page.php?id=1154.
5. Foley & Lardner LLP. March 10, 2005. The Impact of Sarbanes-Oxley on Private and Nonprofit Companies. http://www.fei.org/advocacy/sarbanesoxley.cfm.
6. Risk Management Association survey on Sarbanes-Oxley. May 2005. http://www.rmahq.org/RMA.
7. Powell, Scott S. May 2, 2005. Seeking a Cure for Sarbox. Barron’s.
8. Lobo, Gerald J., and Jian Zhou. Forthcoming. To Swear Early or Not to Swear Early? An Empirical Investigation of Factors Affecting CEOs’ Decisions. Journal of Accounting and Public Policy. http://ssrn.com/abstract=651423.
9. Bhattacharya, Uptal, Peter Groznik, and Bruce Haslem. September 2002. Is CEO Certification of Earnings Numbers Value-Relevant? http://ssrn.com/abstract=332621.
10. Cohen, Daniel A., Aiyesha Dey, and Thomas Lys. February 1, 2005. Trends in Earnings Management and Informativeness of Earnings Announcements in the Pre- and Post-Sarbanes Oxley Periods. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=658782.
11. The full text of the Sarbanes-Oxley Act of 2002 may be found at http://www.loc.gov/law/guide/pl107204.pdf 212kb (PDF Help). Other summaries of SOX may be found at http://www.aicpa.org/info/sarbanes_oxley_summary.htm; Executive Summary of the Sarbanes-Oxley Act of 2002, http://www.csbs.org/government/legislative/misc/2002_sarbanes-oxley_summary.htm; and the Public Company Accounting Oversight Board, http://www.pcaobus.org.
12. Johnson, Shane A., Harley E. Ryan, and Yisong Sam Tian. April 16, 2003. Executive Compensation and Corporate Fraud. http://ssrn.com/abstract=395960.
13. Cohen, Daniel A., Aiyesha Dey, and Thomas Lys. July 23, 2004. The Sarbanes-Oxley Act of 2002: Implications for Compensation Structure and Risk-Taking Incentives of CEOs. http://ssrn.com/abstract=568483.
14. Engel, Ellen, Rachel M. Hayes, and Xue Wang. May 6, 2004. The Sarbanes-Oxley Act and Firms’ Going-Private Decisions. http://ssrn.com/abstract=546626.
15. Thornton, Emily. May 24, 2004. Why Small Companies Want a Little Privacy. Business Week.
16. Quittner, Jeremy. November 1, 2004. Private Matters. Business Week, 50.
17. Corporate Development Roundtable: The Impact of Sarbanes-Oxley on M&A Transactions. July 2004. PricewaterhouseCoopers.
18. Patrick Daughtery participated on a panel on “Why and How to ‘Go Private’” during the 2004 National Directors Institute held May 19, 2004, in Chicago. The theme of this year’s conference was “Corporate Governance Reform: What’s Working and What Isn’t.” Daughtery noted that “by delisting, small (public) companies can save up to $2 million annually.”
19. Baran, Mark R., and Katherine M. Koops. May 2005. Escaping SOX. ABA Banking Journal.
20. Abernathy, Wayne. March 31, 2005. ABA Letter to SEC Proposes Regulatory Relief for U.S. Businesses. http://www.aba.com.
21. ICBA surveyed ICBA-member publicly held community banks. The response rate was 13 percent, with 91 banks responding. The survey included costs for 2004 or 2005, depending on the year in which each institution complied or is required to comply with Section 404.
22. FFIEC (Federal Financial Institutions Examination Council) Reports of Condition and Income—Call Reports.
23. Per Call Report instructions, noninterest expense equals the sum of salaries and employee benefits, expenses of premises and fixed assets, amortization expense of intangible assets, and other noninterest expense. Other noninterest expense includes expenses such as postage, legal fees, advertising, insurance premiums, sales tax, and auditing fees.
24 Sisk, Michael. June 2005. Going Private. US Banker, and Krebsbach, Karen. May 2005. SOX Costs Prompt Switch From Public to Private. US Banker.
25. Baran, Mark R., and Katherine M. Koops. May 2005. Escaping SOX. ABA Banking Journal.
26. Campbell, Doug. Summer 2005. Lights Out. Region Focus. Federal Reserve Bank of Richmond.
27. The FDIC’s Pocket Guide for Directors is available at http://www.fdic.gov/regulations/resources/directors/index.html.
28. ABA. March 31, 2005.
29. Letters to regulators. March 31, 2005. Implementation of Internal Control Reporting Provisions of the Sarbanes-Oxley Act of 2002.www.icba.org.
30. Flake, Jeff. Congressman Flake Introduces Legislation Reforming the Sarbanes-Oxley Act, United States Congress, April 15, 2005. http://www.house.gov/apps/list/press/az06_flake/050415SARBOX.html. See also Congressional Record, 109th Congress, H2100.
31. Pollock, Alex J. May 18, 2005. Economic Consequences of Sarbanes-Oxley. AEI. http://www.aei.org/publications/pubID.22625,filter.all/pub_detail.asp.
32. Wallison, Peter J. January 23, 2003. Poor Diagnosis, Poor Prescription: The Error at the Heart of the Sarbanes-Oxley Act. AEI American Enterprise Institute. http://www.aei.org/publications/pubID.15714,filter.all/pub_detail.asp.
33. Levitt, Arthur Jr., and Paul Volcker. June 2004. In Defense of Sarbanes-Oxley. AEI-Brookings Joint Center. http://www.aei-brookings.org/policy/page.php?id=188.
34. From a speech by William Donaldson in London. January 25, 2005. U.S. May Ease Corporate Accounting Deadlines for Foreign Firms.http://www.usembassy.org.uk/gb007.html.
35. An interview with Business Week senior writer Rich Miller. January 4, 2005. Sarbanes-Oxley: A Sense of “Siege.” A Q&A with Treasury Secretary John Snow on Corporate Reform. http://msnbc.msn.com/id/6798606/.
36. Brady, Diane. April 25, 2005. Sarbanes-Oxley Is Not Bad. BusinessWeek Online. http://www.businessweek.com/magazine/content/05_17/b3930023_mz001.htm.