International Implications of the Cost of Compliance with the External Audit Requirements of Section 404 of Sarbanes–Oxley

The Sarbanes–Oxley ACT (SOX) was effective for many large U. S. companies for fiscal years ending on or after December 15, 2004. Some, cross listed, non U. S., companies must comply with the provisions of Section 404 (404) of SOX for fiscal periods ending on or after July 15, 2006. The purposes of this study are to review the implications of SOX 404, to assess SOX 404’s potential impact on world-wide securities regulation, assess the impact of SOX 404 on external audit fees for the initial group of filers during the first 2 years it was effective and assess SOX 404’s prospective economic impact on foreign companies that cross list their securities in the U. S. Our finding indicated that audit fees increased by an average of 65% for the initial group of filers in the first year SOX 404 was effective and by .9% in the second year. This increase was reflected in a .5% decrease in earnings for these companies. We conclude that although similar results might be expected for foreign companies that cross list, the implementation costs do not provide sufficient reason to weaken or eliminate SOX 404’s requirements at this time. Copyright International Atlantic Economic Society 2009