Costs of compliance

Clients constantly complain about the expense of regulatory compliance - including, of course, legal fees.  An article recently posted on SSRN describes a survey of the actual compliance costs in one particular area:  "Costs of Complying with the Sarbanes-Oxley Act", by Michael W. Maher (Cal-Davis, Graduate School of Management) and Dan Weiss (Tel Aviv, Faculty of Management).  Abstract:    

Managers, investors, and regulators have expressed concerns about the high costs of complying with the Sarbanes-Oxley Act of 2002 (SOX). This paper introduces a new measure of actual compliance costs to facilitate an objective large-scale study of accelerated filers. We find that (i) the annual SOX compliance costs range, on average, from 0.289% to 0.618% of sales in each of the four years after SOX was enacted, (ii) compliance costs exhibit substantial variation across firms and industries, (iii) firms that reported deficiencies in internal controls had significantly higher compliance costs, and, (iv) smaller firms incurred greater SOX compliance costs relative to sales than larger firms. For the majority of accelerated filers, we document significant SOX compliance costs that exceed the SEC's expectations of compliance costs. Nevertheless, we also find that almost one out of every four accelerated filers had costs as low as the SEC expectations in each of the compliance years. This empirical evidence is useful in considering future amendments to SOX and in expanding our knowledge about the economic implications of securities' regulations.

More empirical studies like this will help practitioners advise their clients as to what their clients  realistically face in compliance expenses, and will help regulators factor more realistic costs of compliance into cost-benefit analysis.  EMM