Saturday, November 13, 2004

Costs of Regulation

From the Cato Institute:

Sarbanes-Oxley Compliance Costs Companies Millions

"The cost of completing Sarbanes-Oxley corporate governance legislation has risen to $5.1 million for the average large U.S. company, with a further $3.7 million in ongoing compliance bills," the Financial Times reports.

"The vast bulk of this cost relates to updating and documenting internal management controls the final stage of a controversial reform process that applies to companies reporting from Monday. Some very large companies such as General Electric say they have spent $30 million on this alone."

In "Accounting at Energy Firms after Enron: Is the 'Cure' Worse Than the 'Disease'?" Risktoolz Managing Director Richard Bassett and Chief Technology Officer Mark Storrie argue the Sarbanes-Oxley Act reinforces the measures and bodies that failed to do their job in the recent accounting scandals -- namely, the accounting profession and the Securities and Exchange Commission -- rather than the groups that processed the available information in the most timely manner -- that is, the debt and equity markets.

In addition, Sarbanes-Oxley will discourage risktaking on the part of corporate executives, impose significant costs on all companies through the new Public Company Accounting Oversight Board, and increase the quantity, but not necessarily the quality, of financial reporting, say Bassett and Storrie.