TABLE OF CONTENTS A common misunderstanding about Sarbanes-Oxley is that it has very little impact on privately held companies and, therefore, we do not need to be concerned with it. I attended a recent Sarbanes-Oxley update presentation sponsored by the Research Triangle Chapter of the National Association of Corporate Directors. One of the speakers focused on several reasons why privately held companies were experiencing a "cascade effect" instead of what he thought would have been a "trickle-down effect."
So let's take a look at some of the "cascade effect" issues and factors. The primary reasons to give consideration to some level of Sarbanes-Oxley compliance is that it is good business practice. We will see that some private companies have a broad base of shareholders who will insist on some level of assurance. These issues will be described together with steps that private companies are taking to enhance their internal controls. In addition to good business practice, privately held companies are faced with legal and other reasons that will drive them to mirror the practices and techniques being applied at publicly traded companies.
Underlying the Sarbanes-Oxley legislation was good internal controls that would provide for reliable financial reporting and compliance. It makes sense that privately held companies would require the same level of internal control assurance as public companies. Why should there be a difference in adopting best business practices that are employed by the leading companies? Best business practices are benchmarked all the time and set the standard for...
