Sarah Johnson, CFO.com | US
December 2, 2009

Reduce Audit Fees Rather than SOX Requirements

Congress should focus on how to make the compliance requirements more affordable rather than looking at ways to make it not applicable.

Posted by:

Teresa Bockwoldt MBA, MST

CEO & Co-Founder

Vibato?, LLC

655 Montgomery Street, 5th Floor, Suite 540 San Francisco, CA 94111

Office: 415.240.4867 | Mobile: 707.477.0008 | Fax: 888.407.7725

Posted by Teresa Bockwoldt | Dec 16, 2009 6:00 PM ET

Reduce Audit Fees Rather than SOX Requirements

Congress should focus on how to make the compliance requirements more affordable rather than looking at ways to make it not applicable.

Posted by:

Teresa Bockwoldt MBA, MST

CEO & Co-Founder

Vibato?, LLC

655 Montgomery Street, 5th Floor, Suite 540 San Francisco, CA 94111

Office: 415.240.4867 | Mobile: 707.477.0008 | Fax: 888.407.7725

Posted by Teresa Bockwoldt | Dec 16, 2009 6:00 PM ET

Sarbox X 2009 crisis

Sarbox 404 deals mostly with internal controls, a concept that differs from that so called "risk controls". It would be interesting to know if there is a correlation with internal controls deficiencies reported through Sarbox and the late failures in the 2009 crisis. I mean: companies which reported deficiencies suffered more than the others with no deficiencies ( I recall at least AIG and Citigroup ) .Audit analitcs could perhaps show the correlation?

Posted by joao costa | Dec 15, 2009 9:19 PM ET

Impact of SOX Section 404(b) on restatements

As the article does not provide details of the methodology that Audit Analytic used, it is difficult to judge its realiability for answering the questions whether audits by the registered public accounting firm of an issuer's internal control over financial reporting reduce restatements compared to issuers without such audits. Studying only restatements during one year is not meaningful. In addition, company size itself may be a factor that influences restatements. Since non-accelerated filers are smaller it is difficult to isolate the effect of SOX section 404(b) audits from the effect of being a small company and from other known variables that have an impact on restatements. Furthermore, restatements can have many reasons and may have other causes than fraudulent financial reporting or errors in financial reporting. Sales of business units (discontinued operations) and changes in accounting methods also lead to restatements of prior periods in order to make them comparable. Audit Analytics is a database provider and not an academic research center. They sometimes publish some rudimentary analysis based on descriptive statistics to get media attention (e.g. by cfo.com).

Posted by Guy Whowantsnoadvertising | Dec 3, 2009 7:03 AM ET

Yes, and no.

Does Sarbox Reduce Restatements? Actually, passage of SARBOX contributed to an explosion of restatements from 2003-2007. It wasn't surprising. I think what was surprising was how few restatements there were (15% per year at the peak).

I see a similar phenomenon every day on the local interstate. Traffic zips along, averaging 5-10 mph over the posted speed limit. As soon as a patrol car (parked on the side of the road) comes into view, motorists hit the breaks, actually adjusting their speed to less than the posted speed limit. The traffic crawls along until of patrol car eyesight, then it resumes to 5-10 mph over the speed limit.

Having monitoring and the potential for enforcement causes an increase in compliance adjustments.

SARBOX provisions produce a similar reaction among SEC registrants. The combo of increased monitoring and auditing (SARBOX gives auditors backbone) temporarily causes improved compliance and resultant adjustments. Because auditors (accounting's patrol cars) come in annually, vigilence is fairly constant and companies stay in compliance, needing fewer subsequent restatements.

If our highways had a patrol car every 1/10 mile, then speeding would largely disappear. If patrol car vigilence is responsible for compliance, can we say that speed laws work? No. Nor can we say that speed laws don't work because everyone would break them if there were no patrol cars.

SARBOX internal control provisions don't cause a decrease in restatements, enforcement causes the decrease.

Posted by | Dec 2, 2009 6:55 PM ET