Recommend 'Start Early, Involve Many and Communicate'
Also Identify Unintended Consequences of Section 404
FLORHAM PARK, N.J., May 16 /PRNewswire/ -- How can Sarbanes-Oxley Section
404 compliance transition to a sustainable process for companies?
To find out, senior officers from twenty-seven Fortune 500 companies
gathered under the auspices of Financial Executives International (FEI) to
share their practices, pitfalls, and successes during year-one implementation
of Section 404 and make practical Sarbanes-Oxley recommendations for
sustainability.
The findings of their intensive one-day interaction are found in the
report "Sarbanes-Oxley Section 404 Implementation - Practices of Leading
Companies," published by Financial Executives Research Foundation (FERF), the
research arm of FEI. The report also outlines some of the unintended
consequences of Section 404 compliance.
Sarbanes-Oxley Section 404 requires public companies to evaluate the
effectiveness of internal controls over financial reporting. Further, an
external auditor must audit these internal controls in conjunction with their
audit of the financial statements.
Commenting on the report and release of today's Sarbanes-Oxley guidelines
from the PCAOB and of the anticipated guidelines from the SEC, Colleen
Cunningham, President and CEO of FEI, said: "FEI welcomes this guidance.
These guidelines, FEI's research on year-one implementation costs, the
recurring theme at the SEC's April roundtable, and the practices identified in
this new report all point to the same conclusion: Section 404 should move to a
'risk-based' approach, rather than focusing on 'coverage' ratios for testing.
Our recommended practice is to identify key risks and focus controls there."
The FERF report covers nine areas of implementation focus for Sarbanes-
Oxley Section 404:
* organization structure
* scope, documentation, and testing
* IT controls
* use of external resources
* relationship with the auditor
* deficiency management
* audit committee communications
* Section 302/404 certification process
* Management letter and reporting.
For each area, the report lists the practices of leading companies,
followed by a case study of a Fortune 500 company.
Most participating companies agree that compliance with Section 404 has
resulted in benefits to their businesses, such as encouraging a thorough
review of existing processes. Most also agree that compliance has also
resulted in some excessive costs, diversion of management's attention from
running the business, placing restrictions on IT system changes, and placing
U.S. companies at a competitive disadvantage.
"Evaluating the results and understanding leading practices of first year
implementation activities is an important step to sustainability," observes
Cheryl de Mesa Graziano, FERF Director of Research and an author of the
report.
"Sarbanes-Oxley Section 404 Implementation - Practices of Leading
Companies" can be ordered online at http://www.FEI.org/rfbookstore or by
contacting Lorna Raagas at (973) 765-1033. The report is $99.00.
About the Report's Participants and Authors
The report is based on a full-day discussion session held on March 10,
2005. Participating were 31 Sarbanes-Oxley Section 404 project leaders from
27 Fortune 500 companies that are members of FEI's Committee on Corporate
Reporting.
Dr. Robert A. Howell, Distinguished Visiting Professor of Business
Administration from the Tuck School of Business at Dartmouth, moderated group
discussions of companies' compliance experiences.
Authors of the report are Cheryl de Mesa Graziano, CPA, and Director of
Research at FERF; William M. Sinnett, Manager of Research at FERF; and Dr.
Howell.
About Financial Executives Research Foundation (FERF)
Financial Executives Research Foundation, Inc, is the 501(c)(3) non-profit
educational affiliate of Financial Executives International. Since 1944, FERF
has been an independent source of practical information, service and expertise
for senior financial executives. FERF is solely supported by voluntary, tax-
deductible contributions from corporations, FEI chapters and individuals.
FERF receives no portion of FEI membership dues.
FERF's mission is to meet the needs of the financial management
professional by identifying, developing and distributing timely research in a
variety of ways. FERF provides a wide range of research-driven content
through published research studies, articles in Financial Executive magazine,
electronic newsletters and the FEI Web site, among other formats.
About Financial Executives International
Financial Executives International, the leading advocate for the views of
corporate financial management, is a professional association of more than
15,000 CFOs, treasurers and controllers. FEI enhances member professional
development through peer networking, career management services, conferences,
publications and special reports and research. For more information, visit
the web site at http://www.fei.org.
Contact:
Scott Sunshine Chris Allen
TowersGroup FEI
(212) 354-5020 (973) 765-1058
scottsunshine@towerspr.com callen@fei.org
SOURCE Financial Executives International
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Related links:
http://www.fei.org
CONTACT:
Scott Sunshine of TowersGroup,
+1-212-354-5020, scottsunshine@towerspr.com; Chris Allen of FEI,
+1-973-765-1058, callen@fei.org
NOTE TO EDITORS: Executive Summary Available Upon Request.
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