Private Companies Feeling Effects of SOX

As you know, private companies aren’t currently required to comply with provisions of the Sarbanes-Oxley (SOX) Act of 2002. CEOs from 17 percent of the nation’s fastest-growing private companies say SOX has already had impact on their business and another 13 percent believe they will be impacted in the near future, according to a survey conducted by PricewaterhouseCoopers.

“It is clear that many aspects of the Sarbanes-Oxley Act are, or will be impacting private companies even though they aren’t currently required to comply,” says Jay Mattie, a PricewaterhouseCoopers partner and national assurance leader for its Private Company Services practice.

Among the ways the CEOs of 341 privately-held product and service companies participating in PricewaterhouseCoopers’ Trendsetter Barometer survey say SOX has impacted their firms are:

  • Improving control documentation and testing (64%)
  • Updating governance procedures (53%)
  • Strengthening code of conduct/ethics (50%)
  • Adopting public company “best practices” (35%)
  • Updating/creating “whistleblower” policies (22%)
  • Creating an independent audit committee (21%)
  • Creating an independent board of directors (21%)
  • Other (14%)

Over the next year or two, 54 percent of private companies with SOX initiatives don’t see any change in spending levels. Seven percent expect spending to decrease and 36 percent anticipate their spending will increase. Nearly half expect to see some benefit from their spending. Twenty-six percent of companies expect the benefits will exceed the costs of their SOX initiatives while 22 percent view it as a breakeven proposition. A slightly lesser percentage, 43 percent, believe costs will exceed benefits.

“Measures within the Sarbanes-Oxley Act hold potential benefit for some private companies, but not equally, to the same extent, or in the same way,” says Mattie. “As with any significant organizational decision, the merits of adopting certain provision of the Act – entirely or in part – must be evaluated in light of the related costs and their relationship to a company’s overall strategies, objectives and goals.”

If companies don’t see the benefits as outweighing the costs, what is driving their SOX initiatives? According to the survey there are many reasons including:

  • A “best business practice” (60%)
  • To address future or potential problems (59%)
  • Recommended by an outside constituent such as a lender, stockholder, advisor or vender (43%)
  • Considering future sale of business to another company (26%)
  • To resolve present business problems (19%)
  • Considering going public/IPO (17%)
  • Other (14%)

“Many private companies have something to gain by embracing the spirit, if not the letter of the Act,” said Mattie. “In certain cases, buyers might be willing to pay a premium for companies that have brought their system of internal controls into line with standards in the Act’s Section 404. Likewise, private companies that are on a path toward an IPO must be prepared to meet Section 404 and 302 requirements soon after becoming a public company.”

You may like these other stories...

No matter how much we may want to put them on hold, we all have projects at work we need to start, right? Well, according to a recent survey of human resources (HR) managers by Accountemps, the most productive day of the...
The Ethics Resource Center (ERC) has been conducting nationally representative surveys of ethical attitudes, knowledge, and beliefs in the US workforce since 1994. Its latest comprehensive report, 2011 National Business...
By Ken Berry, Correspondent  Traveling is often physically and mentally taxing. It can also be a taxing experience from, well, a tax perspective. According to a press release by the Global Business Travel...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.