Planning for the Future of Sarbanes-Oxley Work

Source: Partner’s Report—the Monthly Update for CPA Firm Owners

This article is similar to one that appeared last month in Accounting Office Management & Administration Report. Both publications are from IOMA.

There is a sense that auditors are so fearful of lawsuits they are conducting their Sarbanes-Oxley testing at levels beyond what is appropriate and material. But many observers expect fees to decline now that the initial work has been completed. A Big 4 report says costs may drop by 46 percent for the Fortune 1000 now that the initial one-time procedures are completed. Use of technology may also help reduce costs.

Even without the continuation of costs related to the start-up, there will be ongoing Sarbanes-Oxley compliance work. The complete article, which can be accessed via the link at the end of this article, includes a Sarbanes-Oxley implementation timeline prepared by Ernst & Young.

A recent survey by Oversight Systems, Atlanta, shows that compliance with Sarbanes-Oxley has resulted in a reduction in fraud and errors, and more efficient financial operations.

But a research study by the Institute of Internal Auditors, Altamonte Springs, Florida, finds that the first-year cost of compliance is significantly higher than the benefits, though in the future they should be equal.

Some states have adopted regulations similar to those of Sarbanes-Oxley, and many firms have chosen to adopt some of the rules voluntarily—especially certification of financial statements by CEOs and CFOs, appointments of independent directors, adoption of ethics codes, and approval of non-audit services by the boards. Non-profits are more likely than other organizations to institute committee oversight of auditors and place restrictions on executive compensation.

The PCAOB has proposed a system of voluntary controls under which companies would engage auditors to report on whether they have remedied weaknesses in internal controls under Sections 404 and 302. There is no information available yet on whether this proposal will be accepted.

CPA firms concerned about having enough staff to meet the demands in this area should consider alliances and outsourcing. Firms should maintain awareness of any state legislation similar to Sarbanes-Oxley that might affect their clients and their practices.

From Partner’s Report—the Monthly Update for CPA Firm Owners, June 2005, p. 1. For the complete article click here. For subscription information contact Institute of Management & Administration, Inc., 3 Park Avenue, 30^th Floor, New York, NY 10016-5902. One-year subscription $329. 212-244-0360, [email protected].