SOX
SOX is the Sarbanes Oxley Act that was passed in 2002 due to corporate scandals such as Enron and WorldCom. There has been so much unethical behavior that was occurring at that time. Of course it continues to occur but there have been laws and policies set in place so companies will at least think twice about their behavior before they act in a certain way that could harm them with jail time. It can also damage the firm and have a massive job loss. There are plenty of repercussions for unethical behavior. Colleges who see accreditation by the Association to Advance Collegiate Schools of Business (AACSB) have to incorporate ethics in their program. It should touch ethics topics related to “corporate social responsibility, governance, ethical corporate culture, and ethical decision making.” (Brooks, 180).

Section 404
From these issues and problems Section 404 became very important. Under this section it requires management to be more responsible. No longer can the top management say “I didn’t know what was going on”. They can’t throw their hands up and take no responsibility. It requires management to report their findings and that an outside auditor attest management assessment of company’s control. This is to ensure that companies detect fraud in their companies. Hopefully these provisions will cause people to think twice about their actions. 2004 was the first year that companies actually had to comply with SOX that had more than 75 million. (Iliev, 1169)

Benefits of SOX
Section 404 was intended to enhance the quality of reporting . As many investor do rely on the reports to make decisions on how they would like to invest their money. Of course if the reports are fraudulent then the investor can lose their confidence in the company. They begin to lose trust in the management. There needs to be more control in the companies. Management has to be more active in their roles. They must question and investigate the reports. They also must sign off on them. This system has a better internal control. That eases people minds.
A big benefit that people see is the reporting aspect of it all. There is a better chain of command so to speak. It approves the possibility to detect fraud. At my job when we do presentations we usually let it go through a series of people so everything looks ok. We make sure the words are spelled correct and we check the font, size and other things that could stand out. We view to see if it comes across well. We definitely do not want to have a meeting for clients and then notice that the presentation is all messed up. In my last presentation it went through the hands of my peers, my manager and then my director and finally to our CFO. It wasn’t until it hit my CFO hands that he noticed two misspelled words. Now of of course fraud is way more serious than two misspelled words but it just shows you that more people working together can be better. Somebody will catch what you could not see. Section 404 is here to implement that attitude and way of thinking.
Having an outside auditor also helps to keep your firms objectives and goals in order. They also should remain objective in all of their findings. In my auditing class they say that when you are auditing you should audit with the mindset of finding fraud. You should noit go in thinking this is a good company and they probably have flaws. That will not always help in your findings.

Cost of Complying with Section 404
Before we can say is the cost is justifiable what is the actual cost of complying? There is no set dollar amount for complying. The size of company and how you decide to prepare is all up to the company. Some things we can definitely take into consideration are the fees paid to the auditors, fees paid to outside vendors (unrelated audit fees), number of hours spent to comply (internal auditors), software, hardware and an travel need to comply with Section 404. There is no way that you can set a particular dollar amount to each of those categories. No company is the same in how they handle their everyday functions. Of course each firm should be looking for ways to cut costs without jeopardizing their compliance.
There are several case studies to determine the costs but gaining the actual data can be very hard to capture. Not all companies separate out in their reporting what was actually just spent on SOX compliance. Protiviti did some case studies that I found to be very interesting.

The first one is by the company size.
Sizes: Small- revenues less than 100 million Medium- revenues between 100 million and 10 billion Large- revenues of 10 billion or greater

As you can see from the graph most small companies spend less which would make sense. Most small companies are spending less than 100K annually. Most large companies spend the most as their business is very widely spread. There is more information to tally and go through which is very time consuming.
The other study went by the year of compliance. See above chart. According to the information the costs of implementing SOX can very costly in addition to the costs that it takes to just run their everyday business.
Is SOX Worth IT??
There are so many mixed reviews as to if it is truly beneficial. I do believe that SOX is worth it. I don’t necessarily agree with the costs but I can say is that the smaller companies are paying less and the companies who are larger are footing a different bill entirely. I do agree with what Section 404 implements. We must have better management that we hold responsible. That is what this does. Fraud needs to be handled and ethics needs to take a front seat not a back seat. In this regard we are telling companies that it won’t be tolerated. It’s a shame it had to come to this but I do feel like it is needed. We cannot always trust people to do the right thing, to act professionally and ethically. In a perfect world this would not be needed but unfortunately we live in a world of GREED!

Brooks, J.L., Dunn, P. (2008). Business & Professional Ethics for Directors, Executives & Accountants. (5Th ED.) Mason. Cengage Learning.
Iliev, Peter. (June 2010). The Effect of SOX Section 404: Costs, Earnings Quality, and Stock Prices. The Journal of Finance, Vol. LXV, NO.3.
Retrieved from: http://www.protiviti.com/en-US/Documents/Surveys/2011-SOX-Compliance-Survey-Protiviti.pdf