Sarbanes-Oxley Compliance News
Monday, December 3rd, 2007Sarbox Continues To Bite
11.28.07
forbes.com
The day is upon us when the act of corporate compliance isn’t as cumbersome as saying the actual words.
It’s been slightly more than five years since the law was enacted (but enforced three years ago) and finally more U.S. public companies are reporting fewer weaknesses in adhering to Sarbanes-Oxley (SOX) compliance than ever before.
Compliance Week magazine unveiled its "2007 Financial Reporting & Internal Control Benchmarking Reports," to show that across all industries, companies’ Section 404 compliance, disclosed annually, is almost squeaky clean relative to previous years.
Citing the latest industry data that complements this study, Compliance Week said that the researcher, Audit Analytics, reported internal control weaknesses down nearly 45% in the three years since SOX went into effect. Meanwhile, weaknesses reported under Section 302 of the law–where companies must disclose every quarter what errors they’ve found and corrected–are rising.
This actually makes sense. Both sections of the SOX legislation, which is becoming less and less controversial as it evolves, serve a similar purpose as they are meant to ensure accurate financial disclosure.
Matt Kelly, the managing editor at Compliance Week, says companies are doing a better job at identifying problems on an interim basis, which is the intent of Section 302, thus fixing the problems before year-end, when Section 404 is reported. "The weaknesses have gone down so far because companies have just gotten used to this system and managed to sort out where their weaknesses are," Kelly says.Compliance Week is a magazine and newsletter on corporate governance, risk and compliance distributed to public company executives. Its study is based on more than 9,700 publicly traded companies’ performance in a three-year period. Each report in this study examines a host of corporate risks for nine industries. These risks include most common causes of restatements, late filings, internal control and disclosure control weaknesses.
The major findings in the study also include data on fewer reported SOX-related late filings and the industries that show the fewest compliance weaknesses, such as financial services and utilities. "They are already regulated six ways to Sunday, so being regulated a seventh way is not really a big deal for them," Kelly says. The report also offers insight into the audit fees associated with the financial disclosure process. This has been one of the major bones of contention with SOX among executives.
According to the Compliance Week study, companies with less than $1 billion in revenue, for example, pay audit fees that are equal to about 0.31% of revenue, while companies with more than $1 billion in revenue pay audit fees that are equal to only 0.05% of revenue. These costs have steadily declined in the past three years and Kelly said they would continue on that trend partly because more firms are auditing in-house.
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