Disparate Impact of SOX on Large and Small Firms
Andrew Rubin
St. John’s University

I. Introduction During the early 2000’s there was a series of scandals involving many large, multinational firms. Among these firms were Enron, Tyco and WorldCom, all of whom had been costing investors and stakeholders millions, if not billions, of dollars through fraud. Following the scandal, the downturn in investor confidence was enormous. Looking back, there appeared to be a culture of fraud and deceit inside corporate America that had been hurting the average investor. After uncovering these scandals Congress wanted to take immediate action. It passed the Sarbanes – Oxley Act (SOX) shortly after in an attempt restore faith in the country’s capital markets. Between 2000 and 2002 there appeared to be a new, large fraud every few months being covered in the news. Investors were drawing their money out of the markets and some of the largest corporations in America were going bankrupt. Congress quickly looked for answers as to how this could happen and discovered a myriad of factors. Many factors combined to create a culture where small changes to the financials were overlooked and over time those small changes accumulated into larger changes, and bigger issues. Eventually the once small changes became too large to ignore any longer and resulted in collapse. One major factor uncovered by Congress was the effect of auditor conflicts of interest might be having on auditor independence. Auditors were performing tax, consulting and attestation services, to name a few, in addition to the audit. Often time the fee from the other services was greater than their audit fee. The auditor had a conflict of interest in keeping the large client, and its enormous fees, or reporting crooked financials and losing a large account. Congress took notice of the