A New Approach to Sarbanes-Oxley May Produce Impressive Cost Savings
11/11/2009
By Anthony Zecca, Office Managing Partner, Cohn Consulting Group
The Securities and Exchange Commission (SEC) has announced a final deferral of the obligation of nonaccelerated filers to comply with Section 404(b) of Sarbanes-Oxley (SOX) to the first annual report for fiscal years ending on or after June 15, 2010. SEC Commissioner Luis Aguilar and SEC Chairman Mary Shapiro have assured investors that there will be no further extension.
Since SOX was introduced in 2002, Cohn Consulting Group, a division of J.H. Cohn, has helped its public company clients achieve compliance with a long-term focus on delivering a return on each clients investment in their compliance initiative.
What’s new in SOX compliance? Consider our approach:
New SOX: Lean
Old SOX: Costly and complex
To simultaneously reduce costs and ensure compliance, many corporate finance departments are employing lean techniques, a practice used by manufacturers for decades. By eliminating non-value-added activities, a lean approach can free staff to focus on more value-creating activities, including business analysis.
Lean concepts can be used to help define a company’s key controls or identify associated core business processes that could be streamlined, or even eliminated. These process improvements result in benefits that include improved cash flow, profitability, and transparency, while also rationalizing key controls.
New SOX: Fix it before it breaks
Old SOX: Fix it after it’s broken
Although dashboards and enabling analytics technologies have been available for some time, recent advances have made their use more feasible and widespread in a company’s governance, risk, and compliance (GRC) oversight. Based on the principle that each transaction leaves a mark, access to real-time numbers and controls-based metrics enables timely and highly focused insights into transactions that may be suspect when viewed through the filter of controls and financial reporting.
Dashboards and enabling analytics technologies viewed through the filter of controls and financial reporting give management a tool to track SOX progress. Affordable business intelligence software can be your early warning system, providing confidence in the supporting data that feeds financial reporting. Controls-based metrics can provide the CEO and CFO with real-time support for their sign-off on quarterly Section 302 certifications.
New SOX: Risk-based
Old SOX: Prescriptive
For any company, the complexity of the SOX compliance process is directly related to the complexity of the organization itself and its underlying processes. However, the SOX process is clearly a scalable activity, and by focusing on a top-down, risk-based approach, you will find the right “fit”—at the right cost—for your organization.
A top-down approach to the audit of internal control over financial reporting allows organizations to select the controls to test. Begin at the financial statement level with an understanding of the overall risks to internal control over financial reporting. Then, focus on entity-level controls and work down to significant accounts and disclosures and their relevant assertions. Then look at the processes that drive the numbers. Verify your understanding of the risks that exist that could result in a material misstatement and select for testing those controls that sufficiently address those risks.
New SOX: Strategic, integrated, embedded
Old SOX: Fragmented
A terrific opportunity exists for management to internally integrate all of its governance, risk, and compliance (GRC) activities to create an enterprise-wide view of the company from the boardroom to the cubicle, from strategy to tactics. By integrating the often fragmented GRC activities, an organization can find improvements in meeting the demands of regulators while satisfying customers and shareholders and eliminating redundancies across the enterprise.
J.H. Cohn offers a fine-tuned approach to getting a greater return from SOX investment. For more information, visit the Sarbanes-Oxley page of our website or contact us at cohnconsutling@jhohn.com to learn more.
Anthony Zecca, CPA, is office managing partner of Cohn Consulting Group, a division of J.H. Cohn. He can be reached at
azecca@jhcohn.com
or 877-704-3500.