To address reform of the Sarbanes-Oxley Act of 2002 (Sarb-Ox), recall that it was passed in the political furor following the Enron and WorldCom scandals to try to prevent future accounting frauds. Let's start with its most obvious, largely unintended, consequences. Sarb-Ox, with its notorious Section 404 requiring internal control certifications in particular, has created a tremendously expensive amount of paperwork and bureaucracy. In the Sarb-Ox economy it seems that everybody audits everybody else.
Not only is this exceptionally costly, but it is far more costly -- about 50 times more -- than the SEC estimated it would be. Virtually every audit committee around the country has helplessly watched its audit fees escalate dramatically. The explicit costs alone are extremely high and disproportionately high for smaller companies.
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