Small Business Reading Room

Monday, March 21, 2005

Should you go public? Of IPOs and SOX

If you are dreaming about an IPO, here's another three letter word for you- SOX.

For those of you that have been living under a rock for the past three years, SOX is short for Sarbanes-Oxley Act. Perhaps accounting firm PriceWaterhouseCoopers' website sums it up best by saying it
is the single most important piece of legislation affecting corporate governance, financial disclosure and the practice of public accounting since the US securities laws of the early 1930s.
That sounds like an eloquent way of saying it's a big pain in the you know what.

So what does this have to do with listing your company on the stock exchange?

How about compliance and cost. According to "A Puzzling Problem," an article written by Keith Naughton in the March 21st issue of Newsweek Magazine, about 135 companies de-listed so they could get away from expensive SOX compliance issues. Is it really that bad?

The article goes on to say that CEO's contend their auditing expenses associated with SOX are 30 times as originally predicted. Yikes! Imagine if your accountant charged you 30 times what you expected to pay for your tax return.

The bottom line is that huge sums of money must now be earmarked for compliance at the expense of research and development, marketing and hiring. Tupperware CEO Rick Goings laments, "You start looking around and saying, 'Maybe I ought to be a public company in a more reasonable market, Like Germany.'"

Next month the Securities and Exchange Commission is scheduled to conduct a hearing to rethink SOX.

Hey commissioners, "Achtung!"


SOX really seems to have made an impression. But I read on the Wall Street Journal Website (subscription) that it is unlikely to stop the next Enron or Worldcom meltdown. The people who perpetrated those frauds knew what they were doing and intentionally hid the activity off balance sheet. In other words "where the auditors would not find them".

By Blogger Larry, at 9:22 AM  

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