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Sarbanes-Oxley Act (SOX) only applies to public companies. It has been implemented to regulate accounting practices to prevent similar frauds and errors like that of Enron and Worldcom from occurring again (“Sarbanes-Oxley Act (SOX)”,). The regulations by SOX has greatly affected public companies. Even though it has helped to increase credibility of companies which manage to fulfill the regulations and standards set by SOX, such compliance does not sit well with all companies because it comes at a very great cost and also greatly hinders the flexibility of the company to adopt different strategies. For example, small companies may find it difficult to manage because of the added costs of operation of maintaining internal controls. As such, many public companies have opted to become private due to SOX.
Even though the SOX does not regulate or apply to private companies, it does not mean that private companies are not affected. This is because the general public will use the SOX as a standard to compare accounting practices. Hence, they would demand and desire that private companies be on par with similar standards as well. As a result, private companies are compelled to adopt similar standards even though it is legal for them not to do so. This is so as to be able to attract consumers and investors and win their confidence. According to latest reports, private companies have provided feedback that they have been significantly affected by SOX especially when attempting to get loans from banks because other institutions or investors would use the standards which SOX has set to gauge the private company (Jordan, 2003).
Jordan, M. (2003). “Sarbanes-Oxley Act affects private companies”. Retrieved from
“Sarbanes-Oxley Act (SOX)”. (n.d.). Retrieved from