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 The Journal of Law, Economics, & Policy (JLEP)
Presented a Lecture entitled: "The Sarbanes Oxley Act: An Efficient Solution to a Public Problem?"This Event was held: April 6, 2006Lecture Series Event Summary
The panelists included: Mr. Gerald Laporte, Chief, Office of Small Business Policy, Division of Corporation Finance, U.S. Securities and Exchange Commission; Mr. Michael See, Assistant Chief Counsel, Office of Advocacy, U.S. Small Business Administration; and Mr. John Berlau, Fellow in Economic Policy at the Competitive Enterprise Institute. Kristina Husar, a 3rd year law student at George Mason School of Law moderated the discussion. The panel discussed the potential consequences of securities regulation/overregulation. Small companies seem to be particularly effected by new regulations, but the panel agreed that all public companies need to have internal controls to monitor their financial statements. The tragedy of Enron made it clear, to some, that internal controls are not enough. The panel diverged in their opinions of what exactly should be learned from Enron, but concluded that increased government regulation and monitoring may be an option. However, monitoring comes with costs, and the evaluation of these costs is crucial. In the opinion of one panelist, the statistics are distorted because smaller public companies are not counted as small businesses even though they are comprised of limited numbers of employees. Small businesses, in particular, feel the impact of Section 404 compliance. For example, small companies spend roughly $1 million a year on audit fees to comply with Section 404. Since many of these smaller companies make, at most, $10 million a year, they suffer a 10% revenue loss with Section 404 compliance. Such a loss heavily impacts company shareholders. In addition to the fees being spent, small businesses must cope with various opportunity costs. The panel also discussed the advisory committee’s proposed recommendations for smaller public companies. Pre-section 404 regulations require companies to have internal controls for financial statements. Furthermore, the federal government requires auditors to audit the effectiveness of these internal controls. Despite the aforementioned regulations, the Enron tragedy still occurred. Also, the above regulations and audits generally apply to larger companies. Thus, Laporte concludes that there is no existing framework applicable to the auditing needs of small public companies. In spite of their differing viewpoints, the panelists all agreed that Sarbanes-Oxley has and will provide a rich basis for discussion of modern problems in corporate governance. Click Here to return to the previous page  | |
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