Sarbanes-Oxley – one year on

Sarbanes-Oxley has dramatically altered the corporate landscape. Many of the controls improvements and benefits of the legislation are being realised as companies look back on the experiences of their first year of compliance. However, this good news is tempered by the clear indication that significant progress is still required to ensure that the approach in year two is optimised.

While Foreign Private Issuers (FPIs) agree that they have reached their compliance goals for Section 404 (s404) of the Sarbanes-Oxley Act, in many cases the process has been time and cost intensive.

In a PricewaterhouseCoopers survey of Sarbanes-Oxley project leaders at FPIs, we aimed to identify the challenges that companies face as they embark on their second year of s404 compliance. The results show that, despite the many advantages, there remains considerable room for improvement. Two major issues identified in the survey include:

• 78% say that they have identified an excessive number of controls within their organisation - fresh challenges await the FPI community in year two as they face the task of interpreting new SEC guidance which calls for a top-down, risk-based compliance approach. This, according to the SEC, will help to reduce the number of key controls and the cost of testing the controls.
• 91% say that there are opportunities to automate processes and controls further - companies recognise the benefits of automation and its potential to reduce time and costs, while minimising the scope for manual intervention. However, in the rush to achieve compliance, few companies have taken advantage of their existing financial reporting systems to automate processes and controls.

For many FPIs, the opportunity to drive through the benefits of adopting an automated and more risk-based approach is fast shrinking as year two activity continues to gather pace.

At PwC, we believe the right controls are those that mitigate risk to the business in an efficient and cost effective way. Our specialists in controls optimisation can work with you to establish the right controls at the right cost for your organisation.