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Admits SEC's cost estimates were "way off," but says companies are likely testing too many controls. He also says the concept of different rules for smaller companies is "difficult."
Ronald Fink, CFO.com | US
May 4, 2006
So the SEC is surprised that accounting firms and private businesses reacted the way the government acts - by over-reacting!
It will take a few years for this to settle down and actually get to the purpose. As long as CPA firms can avoid problems by over-testing and requiring clients to over-test, there will be an abundance of testing on tranactions that don't really fit the basic intent of Sarbanes.
After companies have a few years of compliance behind them, this will settle down and hopefully the value of value of Sarbanes will remain in the control environment along with the exercise of testing too much in case the government/courts grade the effort by the weight of the documentation.
Posted by Bernard Boona | May 07, 2006 05:21 am
Companies and auditors should correctly identify the 'key' controls. Then, they should make sure that the control objectives are met (and risks eliminated) by a) designing the controls properly; and b) causing them to operate effectively. This is the essence of SOX. However, this is easier said than done. If the accounting fraternity can limit the SOX exercise to the true 'key' controls, the benefits of a 'resulting good control environment' would be far in excess of the immediate and sustaining maintenance costs.
Posted by Chandrasekar Venkataraman | May 06, 2006 07:25 am
The SOX attest framework ideally is an excellent tool for both the companies and the investors to have confidence in their accounting processes, systems and Financial Statement representations. That is the ideal. When you consider the agony of high bills, staff time diversions, uninformed/illprepared so called readiness expertise and Attest staff, as well as the non existent buy-in of client companies to the value and/or necessity for the controls and testing, you have a contradictory situation. SOX is a great and valuable excercise, even given these considerations. It must be explained in terms of the value to be derived as the process is adopted and owned by the client companies and that a bit of pain now will serve as a comforting buffer to liabilities, law suits, fraud, and negative images of Corporate America later. But we have to get to the later. For small companies it is a pain, the same controls must be documented, tested and validated for them as in a large company, there are no or not many economies of scale, but the value realization is the same in the long run. We all; clients, Firms, SEC, are in this together, so let's accept it for its intent and the value to be derived and thus properly educate our staffs and management as to purpose and proper implementation, so we can all breath a bit easier in the future.
Posted by Robert Greene | May 05, 2006 01:47 pm
So two years later the SEC and PCAOB decide that companies are not focusing on the material weaknesses and spend too much time testing minor controls. I wonder if plaintiffs attorneys will agree when a suit is filed and the CFO testifies that they did not test all the controls and that some of the controls not tested were 'immaterial'. I think 404 has opened a pandora's box and created new issues that complicate the whole issue of financial reporting.
Posted by Tad DeOrio | May 05, 2006 11:20 am
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