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In a useful summary paper, "CASE STUDIES: BENEFITS OF 404 IMPLEMENTATION", the four firms appear to have consolidated a list of benefits that clients are finding as a result of their SOX efforts. Given my interest in risk management for the not-yet-public businesses, a few choice excerpts: Positive Impact on Business Transactions #1 A company built its business through an acquisition strategy, yielding significant growth over the past 2-3 years. The 404 implementation process changed the way in which it evaluatesacquisitions and its process of due diligence. As part of year one implementation, the companyinstituted a centralized enterprise risk management (ERM) system, which allowed for better control over the inherent risks associated with its many disparate operations. When evaluating potential acquisitions, the company now applies its ERM system to evaluate the target’s internal control over financial reporting risk, and purchase decisions are now based on the entire control environment rather than simply cash flows, revenue streams and other more traditional measures. Positive Impact on Business Transactions #2 Company Y has made the lessons of Section 404 compliance a part of its due diligence process. It is taking a closer look at targets, incorporating comprehensive internal control reviews into the due diligence procedures. In addition, management is now considering requiring remediation efforts prior to the closing of a transaction. The company is hopeful that this increased focus on internal controls will result in improved post-acquisition performance. I think these are excellent examples of the temperature to be found at organizations that have long grown through aquisition - a shiny pitch and cashflow isn't going to cut it anymore. For the private investor seeking a liquidity event (via acquisition or IPO), controls and risk management practices should be high on the agenda. If you've not yet done so, now is an excellent time to begin familiarizing yourself with the Sarbanes Oxley, and the fundamentals of risk management (COSO framework) that are now required.
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