The Costs Implications of the Sarbanes-Oxley - Research Paper Example

The high costs associated with the implementation of the Sarbanes-Oxley prompt the clients (companies) to pay lesser fees to the audit firms as they try to minimize 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 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 an even more interesting comparison. There is no significant variation in the number 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 audit 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 of 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 audit-related fees rose consistently between 2004 and 2010. From the report quoted in the press, it is clear that there is a 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 six years. The trend is largely similar to that in GE Exhibit 2. A comparison of the audit fee 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.

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.