SOX Internal Controls Requirements Studied by SEC

Posted by Nancy Johnson on April 26, 2011

describe the imageThe costs and impact of SOX 404(b) -- which requires auditor review of internal controls over financial reporting -- was the subject of an SEC study published on April 22, 2011.

The study looked at how to reduce the burden of SOX 404(b) compliance for accelerated filers with a public float between $75 million and $250 million without removing protections provided by SOX 404(b) for investors in those companies. 

Notable findings include:

  • SOX 404 (b) costs have declined since the SEC first implemented Section 404 requirements.
  • In general, investors believe the auditor’s attestation on internal controls over financial reporting is “beneficial.”
  • Auditor involvement in internal control assessments increases the internal control and financial statement reliability.
  • The study found no conclusive evidence that SOX 404 (b) requirements significantly affect companies’ listing decisions.
  • The PCAOB and COSO continue to be seen as leaders in establishing “effective and efficient” audit- and compliance-related processes.
  • The SEC recommends no new exemptions for SOX 404 (b).
We at Vibato concur that an effective and efficient approach to SOX 404 (b) audits reduces the cost burden of compliance. In fact, we’ve built our business around that concept, leveraging best-practices, standardization, and technology to reduce the financial burden of SOX 404 (b) without compromising quality.

One last point: in October, 2010, the SEC asked for public comments on 23 topics (to be included in this study) but received just 12 comment letters – two from investor groups, four from public accounting firms and affiliated organizations, three from industry organizations, and three from individuals. 

Based on all the attacks on SOX in the media, it’s surprising there weren’t more comments. Either the SEC needs to do a better job of publicizing its desire for our input, SOX pundits need to do a better job of providing feedback in this kind of formal forum, or the SOX debate is no longer as big of an issue as it has been made out to be. 

Leave a comment to tell us what you think about the study, SOX, and best ways to reduce the cost of compliance.

Tags: Internal Controls, 404, 404 audit, Non-accelerated filer 404(b) information