Looking beyond compliance

Most US senior executives take a positive view of their company’s initial compliance with Section 404 of the Sarbanes-Oxley Act, according to a recent Pricewaterhouse Coopers Management Barometer. The majority has since moved on to align their quarterly Section 302 reporting with their annual 404 assertion—and beyond, to establish a year-two compliance process.

Most agree that work on Section 404 compliance has helped their company in terms of motivation, understanding and improvement of internal controls and processes.

Motivation to improve internal controls
- 76%
A better understanding of company
processes and controls
- 70%
Motivation to improve risk management
- 65%
Impetus to streamline underlying processes
- 61%

“We find that well planned and executed actions taken to achieve most kinds of regulatory compliance also support the achievement of fundamental business objectives,” says PricewaterhouseCoopers partner Nancy Beacham.

Cost reductions expected. Surveyed executives expect they will be able to reduce the total cost of their Section 404 compliance. Tighter scoping of required actions is the number-one area in which they expect to achieve reductions in the cost of year-two compliance.

Cost reduction opportunities	Percentage of respondents reporting Major or moderate cost savings potential
Tighter scoping of required actions	63%
Improved use of consultants and external resources	52%
Improving control environment by streamlining and automating controls (eliminate duplication, replace manual, etc.)	51%
Establishing clear accountability (roles, responsibilities) and an improved operating structure (policies, procedures)	50%
Improved control environment by streamlining the underlying business processes	43%
Improved use of technology in managing the compliance process	35%

“Tighter scoping, the cost-saving opportunity mentioned most often, is likely an aggregation of several components--related to properly identifying and testing only key controls that achieve the relevant financial statement assertions and leveraging the “top down/risk based approach,” Beacham says.

Internal reaction is positive. A solid 81% report that their company’s Sarbanes-Oxley project is viewed as a success internally—including 41% who say it is seen as a success throughout their company. Only 17% say their company’s 404 experience was less than a success.

Quarterly alignment is proceeding. The majority of surveyed companies (57%) have already aligned their quarterly Section 302 reporting with their annual 404 assertion—and an additional 14% have plans to do so.

No clear consensus on leadership of future Sarbanes-Oxley matters. Going forward, surveyed companies’ Sarbanes-Oxley matters will be led by a variety of groups, including: internal audit (37%), the CFO or Controller (31%), an existing task force or work group (23%) and/or new or existing risk management functions (16%).

Half (50%) plan to use internal audit in an oversight or quality control role, while a testing-only function is designated for internal audit by 37%.

“In our experience, housing leadership of the Sarbanes-Oxley compliance effort in the finance organization can send the message that compliance is finance’s problem when, in fact, nearly all operational processes in a company feed the financial reporting stream, and thereby have a role in compliance,” notes Beacham.