Critics of SOX say it has placed an unfair burden on public companies to comply with Sarbanes-Oxley (Orin, 2008, p.143). Complying with sections 404 and 302 is costly. It is not unusual for companies to have accounting costs exceeding 1 million dollars (Kessel, 2011, p.1082). These costs become extremely difficult to pay for small companies like bio-tech companies. A bio-tech company may have $15 million in capitalization and no revenue. Small companies receive an unfair burden of the costs of SOX implementation. New laws may allow companies with less than 1 billion in market evaluation to opt out of SOX. Also there may be provisions to exempt companies for the first five years following their IPO (Kessel, 2011, p.1082). Those in favor of SOX say the benefits of the Act outweigh the costs. SOX has improved the reliability of financial reporting in public companies and left investors in a better position now than they were before SOX implementation. It has also created a heightened sense of awareness of ethical issues throughout the companies from the CEO, to the Board of Directors, to the auditor and all the way down to the employees. Critics of SOX want it revised or repealed because it is unfair to small companies.
The SEC has responded to these complaints by softening some requirements
and pushing back deadlines for others. However, it has insisted that the reasons
behind the Act are valid and that its provisions, on the whole, are in the best
interest of the country. Congress seems to agree, with no indication of repeal
Mason & Simmons (2014) describe two modes of stakeholder engagement, “Habermasian” and “Ethical Strategist.” They believed that Habermasian approach was purer in a moral sense because it required CSR decision-makers to place the importance of ethical purity over cost and alignment with strategy. In contrast, the “Ethical Strategist” approach believed there should be no distinction between morality and strategy (Mason & Simmons, 2014).
Akhigbe, Martin, & Newman (2010) found that the wealth effects of SOX were more favorable for large firms expecting to gain improvements in information asymmetry and less favorable for small well-governed firms that were likely to incur high compliance cost (Akhigbe, Martin, Newman, 2010).
Akhigbe, A., Martin, A. D., & Newman, M. L. (2010). Information asymmetry determinants of Sarbanes-Oxley wealth effects. Financial Management (Wiley-Blackwell), 39(3), 1253- 1272. doi:10.1111/j.1755-053X.2010.01111.x
Kessel, M. (2011). Sarbanes-Oxley overburdens biotech companies. Nature Biotechnology,
Mason, C., & Simmons, J. (2014). Embedding corporate social responsibility in corporate governance: A stakeholder systems approach. Journal of Business Ethics, 119(1), 77- 86.
Orin, R. M. (2008). Ethical guidance and constraint under the Sarbanes-Oxley Act of 2002. Journal of Accounting, Auditing & Finance, 23(1), 141-171.
Sarbanes-Oxley. (2004). A guide to Sarbanes-Oxley section 404. Retrieved from