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Compliance : Sarbanes Oxley : Thought Leader
Are The SEC?s Latest Actions and Delays A Good Compromise?
By
Thomas Basilo
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Thomas Basilo
CEO
Withum Smith+Brown Global Assurance
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There has been such extensive focus over the past 18 months on the plight of smaller public companies and their attempt to obtain exemption from complying with Section 404 of the Sarbanes-Oxley Act of 2002 (?SOX?) that the latest announcement by the SEC announcing yet another delay disturbed me but certainly did not surprise me.
I expected that the SEC would do something to appease the smaller companies since it appeared that full exemption had little support from anyone other than the smaller public companies themselves. After reading their proposal and providing my commentary on it to the SEC, my reaction was that the smaller public companies had overplayed their hand and underestimated the investing public?s support for transparency and good corporate governance.
I have been disappointed with the SEC in the past for delaying implementation of SOX for non-accelerated filers three times because I believe that all companies that solicit and accept funds in the public market need to have an effective system of internal accounting control in place. This is not a new rule as the Foreign Corrupt Practices Act of 1977 (?FCPA?) established that all companies subject to the FCPA rules need to maintain a system of internal control. However, after the SEC granted a fourth delay, it stated definitively that all companies will be required to comply with SOX, so I feel more encouraged that real accountability to the public is at hand.
I continue to question those who say they need more time to comply because SOX has been on the books for more than four years now and that should have been plenty of time for companies to get ready and start documenting internal accounting control systems. But many (if not most) of the non-accelerated filers have still not yet begun to address the issue or start the SOX implementation process and I find that very troubling. If these smaller public companies were truly serious about managing costs, they would have already started the process by now and completed it over a three-year cycle. That would have spread the costs out over time and reduced the huge impact on any single year.
Non-accelerated filers must begin to act and stop procrastinating. Otherwise, they will soon face a situation that will not be easy to rectify. There are significant advantages to starting the process now:
• The current availability of quality SOX consulting firms provides a window to negotiate pricing and implement the process over time, thus allowing for minimal disruption of the day-to-day activities of the company.
• Savvy executives are viewing SOX as part of a bigger picture to protect and grow their companies. Many companies have treated the process as a good business decision and not merely as a compliance project.
• By addressing the project now, a company can work on implementing more efficient and effective IT controls and replace higher frequency manual controls. This will improve the control environment and save significant testing time.
• Companies can assess the need for certain controls and institute projects to eliminate redundant controls. Only key controls need to be tested for compliance with SOX and effectively identifying only key controls is a major way to reduce costs.
The use of an expert SOX consulting firm can help a company incorporate best practices into their internal control system. One of the lessons learned by the accelerated filers was that everything takes longer than expected. By starting now, a company can secure a quality SOX consulting firm and avoid the last minute crunch that many accelerated filers experienced. As the SOX consulting firms got busier, pricing also increased?a lesson to be learned for non-accelerated filers.
Non-accelerated filers were first given notice more than four years ago that they would need to comply with SOX. Over this time, there has been little movement overall to do this but as we edge toward the end of 2006, reality is setting in that the clock is ticking and many small firms are seriously unprepared to take on this task. Small companies that act now may very well find themselves not only far ahead of the compliance process but in a competitive advantage in the marketplace as others struggle to meet the deadline or fail to do so.
Thomas Basilo
CEO
Withum Smith+Brown Global Assurance
Thomas A. Basilo is the Chairman & CEO of
WithumSmith+Brown Global Assurance located in Princeton, NJ
For more information go to www.wsbga.com
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