Case - Research Paper Example

The Costs Implications of the Sarbanes-Oxley It is a requirement that auditors assess the operating effectiveness of the internal controls of their clients over financial reporting. The audit firms are then supposed to give their opinion management’s internal control assessment and the information be used to guide the stakeholders and owners of the companies. The introduction of the Sarbanes-Oxley impacts the U.S capital markets, in terms of costs. Many companies have to incur higher costs in hiring and paying auditors. The requirements of the Sarbanes-Oxley related to non-audit services can influence the opinions of the independence auditors (textbooks.com). The high costs associated with the implementation of the Sarbanes-Oxley prompts the clients (companies) to pay lesser fees to the audit firms as they try to mi9nimoize their total costs. Ethical issues may, therefore, arise.
There is a significant variation in the amount of fees paid by General Electric to auditors before and after the implementation of the Sarbanes-Oxley. The comparison is therefore between the fees before (2000 and 2002) with those of (2004, 2006, 2008, and 2010). In the period between 2000 and 2002, all the fees paid by General Electric to Auditors (in millions), except the financial information systems fees took an upward trend. The audit fees increased by $14.8 while the audit-related fees and the tax fees increased by $7.8 and $7.4 respectively (textbooks.com). After the implementation of the Sarbanes-Oxley, the figures increased still but not uniformly as before. The audit fees and the audit related fees rose significantly between 2004 and 2008 and then dropped to in 2010. The increment is however not bigger than the change in the tax fees, which were reduced drastically after the implementation of the Sarbanes-Oxley.
Taking a similar analysis for the Fortune 100 companies yields even more interesting comparison. There is no significant variation in the amount of fees paid by Fortune 100 companies to auditors before and after the implementation of the Sarbanes-Oxley. In the period between 2000 and 2002, all the fees paid by Fortune 100 companies to auditors (in millions), except the financial information systems fees take an upward trend. The audits fees increase by $1.0 while the audit-related fees and the tax fees increased by $1.9 and $3.4 respectively. As in the case General Electric, after the implementation of the Sarbanes-Oxley, the figures still increased (amazon.com). The increase here is more uniform and consistent unlike the case of General Electric. The audit fees and the audit related fees rose consistently between 2004 and 2010.
From the report quoted in the press, it is clear that there is significant cost increment for General Electric and Fortune 100 companies. In the GE exhibits given (1 and 2), there is a considerable increment, both in the audit fees and the audit related fees, incurred by both companies to the auditors. The increment is more pronounced though, on the audit fees than in the audit related fees. The audit fees figures in 2000, 2002, 2004, 2006, 2008 and 2010 were; $ 23.9, $ 38.7, $ 78.2 $ 94.3 and $ 89.9 (in millions) respectively. The audit related fees figures in 2000, 2002, 2004, 2006, 2008 and 2010 were; $15.5, $23.3, $15.5 $20.6, $31.5 and $9.7 (in millions) respectively (amazon.com). The other fees were somehow controlled favorably by the company, within the six-year period. The trend is largely similar to that in the GE Exhibit 2.
A comparison of the audit fees figures in 2004 versus the audit fees in 2008 and 2010 for General Electric and Fortune 100 companies shows that AS 5 lowered its costs of section 404 compliance. The GE 1 and 2 are the disclosure requirements implemented by the SEC. The audit fees figure in 2004 for General Electric, for example, was $85.8 while that of 2008 is $94.3. It means, therefore, that General Electric and Fortune 100 companies incurred additional audit fees of about $16.1 in four years (amazon.com). In 2010, the audit fees were $89.9. It means there was a slight reduction of $4.4 within the two months.
Works Cited
Timothy Louwers Auditing and Assurance Services 5th edition ISBN13: 978-0077520168 ISBN10: 0077520165 David N. Ricchiute Auditing And Assurance Services 5th Edition Hardcover – 1998 Timothy J. Louwers, Robert J. Ramsay (Author), David H. Sinason (Author), & 2 more
Auditing & Assurance Services, 5th Edition Hardcover – February 1, 2012 Read More