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Why would Sarbox drive up audit costs for non-public companies (i.e. startups and small business owners)? Financial statement audits for private companies are

by joubert 17y ago

Why would Sarbox drive up audit costs for non-public companies (i.e. startups and small business owners)? Financial statement audits for private companies are exempt from SOX. PS: I used to be an external auditor at PwC.

tptacek 17y ago
Supply and demand, and business processes tuned for bigco audits? A similar thing happened with security audits. Huge demand from large companies with extreme requirements has definitely raised the cost of assessments for small companies.
- joubert 17y ago
  So maybe this just opens up the market for more small CPA firms?
  - tptacek 17y ago
    If VC's and F-500 acquirers aren't going to accept results from small CPA firms, then increasing the supply of small CPA firms will only indirectly help startups.
    - joubert 17y ago
      I wonder which CPA firms VC's typically use today? I'd be curious to see to what extent these non-small CPA firms latch SOX reporting requirements onto their audits or other engagements for VC's.
grellas 17y ago
I can't speak for the auditors, since I am a business attorney, but I do know what I have seen in helping to find this type of service for clients. For example, just within the past year, I was asked to help find a good auditing firm by one closely held Silicon Valley startup with fewer than 50 employees and a few million in annual revenues - the cheapest estimate came in at the $60K-$80K range (and this was from regional firms, not Big Four). Don't know exactly why this is, except that the auditors themselves kept referring to Sarbox-type requirements that had become standard practice for all audits, public and private. Also, I think many of the smaller players have been chased out of the auditing field by the new complexities injected by Sarbox and relating recent developments in the field. Whatever the cause, at least in and around Silicon Valley, it is no longer easy to find a small firm that will do a quickie audit for a modest sum. [Edit: just saw reply by tptacek - he says it much better than I do.]
- kirsty 17y ago
  As an ex-Big 4 auditor, I have experience of auditing both private and public US firms. Even without Sox requirements, there are enough complications in the audit legislation to make a private company audit less than straightforward. Trying to squeeze those regulations into a start-up type company structure is what makes up the time and cost of an audit.

by joubert 17y ago

tptacek 17y ago

Supply and demand, and business processes tuned for bigco audits? A similar thing happened with security audits. Huge demand from large companies with extreme requirements has definitely raised the cost of assessments for small companies.

joubert 17y ago
So maybe this just opens up the market for more small CPA firms?
- tptacek 17y ago
  If VC's and F-500 acquirers aren't going to accept results from small CPA firms, then increasing the supply of small CPA firms will only indirectly help startups.
  - joubert 17y ago
    I wonder which CPA firms VC's typically use today? I'd be curious to see to what extent these non-small CPA firms latch SOX reporting requirements onto their audits or other engagements for VC's.

grellas 17y ago

I can't speak for the auditors, since I am a business attorney, but I do know what I have seen in helping to find this type of service for clients. For example, just within the past year, I was asked to help find a good auditing firm by one closely held Silicon Valley startup with fewer than 50 employees and a few million in annual revenues - the cheapest estimate came in at the $60K-$80K range (and this was from regional firms, not Big Four). Don't know exactly why this is, except that the auditors themselves kept referring to Sarbox-type requirements that had become standard practice for all audits, public and private. Also, I think many of the smaller players have been chased out of the auditing field by the new complexities injected by Sarbox and relating recent developments in the field. Whatever the cause, at least in and around Silicon Valley, it is no longer easy to find a small firm that will do a quickie audit for a modest sum. [Edit: just saw reply by tptacek - he says it much better than I do.]

kirsty 17y ago
As an ex-Big 4 auditor, I have experience of auditing both private and public US firms. Even without Sox requirements, there are enough complications in the audit legislation to make a private company audit less than straightforward. Trying to squeeze those regulations into a start-up type company structure is what makes up the time and cost of an audit.