CEO Magazine 09 05


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Co-Authored with Tim Leech.

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CEO Magazine 09 05

  1. 1. Sarbanes-Oxley: fight it or accept it? Page 1 of 2 Wednesday 5. Oct 2005 Home Sarbanes-Oxley: fight it or accept it? Editorial CEO Services In the USA, the recent raft of regulations associated with the Sarbanes- Oxley Act is deeply unpopular. But can anything be done? Dwayne Useful Links Jorgensen of Computer Task Group, Inc and Tim Leech, chief methodology Subscribe officer for Paisley Consulting, think so. Advertising The well-known Serenity Prayer urges: 'God grant me the serenity to accept the Contact things I cannot change, courage to change the things I can, and wisdom to know the Survey difference.' The Sarbanes-Oxley (SOX) issue is a classic example of a situation that requires such CEO Solutions wisdom on the part of executives directly or indirectly affeted by these rules. showcases the most innovative solutions to The Sarbanes-Oxley Act effectively makes senior management responsible for making your organisation's ensuring that its financial statements are reliable, but it has also brought with it business challenges. regulation that has increased the costs and difficulties of doing business. So should Corporate Strategy executives escalate the battle for change or accept the rules as they are and move on? Finance Human Capital Fighting talk Management Technology Some believe that publicly fighting SOX is dangerous. Others passionately believe that Outsourcing not continuing the fight condemns companies to unnecessary costs and sub-optimal Lifestyle returns. Non-US listed companies are not immune to the dangers of the SOX regime. Even private companies may be caught in the SOX web, as major credit agencies increasingly view SOX-generated financial statements as superior to current Grade C private company and European financial statements. The Securities and Exchange Commission (SEC) invited comments in early 2005. They received hundreds of angry submissions. Unfortunately, the vast majority of senior executives continue to maintain a silence on SOX. Those who do speak up often focus on the high costs and severe disruption SOX causes to their businesses. But few of the comments filed with the SEC contain concrete, practical suggestions on what should be done to fix the problems with current regulations. In response to the complaints, the SEC and the new auditor oversight agency, the Public Company Accounting Oversight Board (PCAOB), offered 'clarification' statements on the existing SOX rules on 16 May 2005. In reality, these policy statements have clarified little and fixed almost nothing. So can and will the SOX rules be changed to reduce the pain, or should the rules be accepted with serenity as they stand by investors, boards and senior executives? The need for change The Computer Task Group, Inc (CTG) feels that the battle for practical changes to the SOX implementation rules should be escalated, more resources dedicated to the fight and better and more thoughtful strategies developed to force major revisions to the rules. If the rules must be accepted in their current form, businesses should do everything possible to minimise the costs and disruption to their operations and generate as many tangible benefits as possible. SOX the law is not the problem. It calls for what many would readily accept: that 10/5/2005
  2. 2. Sarbanes-Oxley: fight it or accept it? Page 2 of 2 senior management should have a responsibility of care and that they must make sure that its financial statements are reliable. It is the regulations enacted by the SEC and, to a greater extent, the PCAOB that have caused the massive costs, now estimated in the tens of billions of dollars. The PCAOB, through Audit Standard 2, assigned primary responsibility for deciding the type and number of controls companies should have with external auditors - the same auditors who will be sued if they issue wrong audit opinions. The way forward CTG believes that boards and senior executives should continue to lobby to have the SOX implementation rules revised and the power imbalance between management and external auditors corrected. They should also call on the SEC to establish an independent agency to develop and expose for comment more practical guidance for management on how to assess and report on control effectiveness. And they can exploit the leverage provided by the SEC in its 16 May Staff Statement calling for management to play a bigger role in deciding what a 'reasonable approach' that provides 'reasonable assurance' should look like. The external auditors have driven the agenda thus far. Finally, they should reduce their reliance on costly, ineffective manual control assessment and deploy enterprise-wide automated risk and control monitoring tools that efficiently identify the real risk exposure areas. Further information 10/5/2005