Question

Hi Max. You brought up a fantastic point about internal controls! Section 404 is probably the most infamous section of the Act. It required management to perform an in-depth assessment of their internal controls and required the external audit firm to issue an opinion on management's assessment. This section was met with great opposition in the corporate world due to the cost implications. That's one aspect of Sarbanes-Oxley that is often ignored in discussions. For most large companies to comply, it was extremely costly - as in millions and millions of dollars!

Class, do you think there was any way to meet the same objectives but with a reduced cost? Why or why not?

Answer 1

No, (whynot? is discribed below in well understandable manner a single sentence wont make it happens to understand what it is. Any way last portion of answer gives specific answer to requirement.)

SARBANES–OXLEY is a RULES-BASED approach to corporate governance of US which is unlike to corporate governance in UK which is principal based.

In SARBANES–OXLEY listed companies in US are required to comply in detail with Sarbox provisions. Sarbox compliance can be very expensive as it requires compliance in all terms.

Also the Approach of one size fits all for corporate goernance provision is criticised very much because Sarbanes Oxley requires same detailed provisions for small and medium-sized companies as of larger companies.

It requires the Listed Companies to report on the effectiveness of the internal control. On Internal Control the management needs to asses periodically and prepare detailed report  in a systematic way.

This assessment report of internal control are auditable which seems to be very expensive and less important for smaller companies than for larger ones. But there is no way to bypass any provision under Sarbanes-Oxley since it is rule based approach of Corporate governance and is compulsory.