Friday, October 15, 2004

Observations from the Sarbanes-Oxley trenches

A lot has transpired since I last wrote about the “Technology Implications of Sarbanes-Oxley” earlier this year. With Section 404 effective dates right around the corner, the emotions of CEOs, CFOs, audit committee members and external auditors are in high gear as many of them are closing in on their first round of reporting.

Wide speculation is that many companies’ material weaknesses will be tied to IT deficiencies. IT has traditionally been viewed as overhead burden by organizations. Now IT is rightfully being recognized as a key foundation of an effective internal control system and therefore very relevant to the ultimate success of the Section 404 initiative.

Virtually everyone from the board room, executive management and audit firms is apprehensive, perhaps even paranoid, about those two little paragraphs of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX, titled “Management Assessment of Internal Controls.” Section 404 requires public companies to report annually on the effectiveness of their internal controls over financial reporting. It also requires their independent auditor to attest on management’s conclusions, as well as render a separate opinion on the effectiveness of management’s controls.

Observations from the Sarbanes-Oxley trenches

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