CFOs Name Top Sarbanes-Oxley Challenges

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The Sarbanes-Oxley Act is presenting chief financial officers (CFOs) with significant challenges beyond the well-publicized executive certification and internal control requirements, according to a study released by Protiviti Inc., a leading internal audit and business and technology risk consulting firm.

Although efforts to comply with Sections 302 (executive certification) and 404 (internal control reporting) were cited by one in three CFOs (34 percent) as the most challenging aspects of Sarbanes-Oxley, following closely behind in the poll were:

  • aligning audit committee activities with legal and regulatory requirements (27 percent);
  • and recruiting an audit committee "financial expert" (23 percent) as defined by the U.S. Securities and Exchange Commission (SEC).

"Publicly traded firms remain under intense pressure from boards and shareholders to meet the new governance requirements of Sarbanes-Oxley, the SEC, the exchanges and other regulatory bodies," said Everett Gibbs, managing director for Protiviti. "Companies are undergoing significant operational and cultural changes needed to achieve compliance, and our study indicates these changes are occurring well beyond executive certifications and internal control issues. Directors and management are addressing areas such as audit committee oversight, board composition and structure, and auditor independence."

Among the survey's other key findings:

Changing Board Practices:

With an increased focus throughout businesses and the media on independent directors, 40 percent of CFOs overall, and 33 percent of CFOs at large companies, report there have been or will likely be changes in the makeup of their boards or board committees in response to the Act.

Reasons cited for board changes included new rules concerning independence (41 percent) and the desire for greater levels and diversity of experience on the board (25 percent). The survey results indicate that another significant change occurring at the board level is the type of information directors are receiving. In 83 percent of firms, management decided on its own to provide more information to the board and its committees, while in one of three companies directors issued requests for more detailed information.

Also of note, 60 percent of CFOs polled said that since the passage of Sarbanes-Oxley, their boards have expanded their oversight of the external audit process as well as internal audit activities. In addition, 46 percent of respondents with large companies report their directors or board committees are conducting self-assessments in which they are rating their own performance and reporting the results to the board. Forming disclosure committees

Almost half of all companies surveyed (49 percent) have formed a disclosure committee, as recommended by the SEC. According to the poll, nearly all of these companies are relying on their disclosure committees to oversee the executive certification process on an ongoing basis.

The survey findings also confirm that large businesses are more likely than small firms to have disclosure committees in place. Seventy-four percent of large companies have formed a disclosure committee compared to just 33 percent of small companies, according to the results.

Preserving Auditor Independence:

Companies are taking definitive actions with regard to preserving the independence of the external audit function. Nearly three out of four audit committees -- 72 percent -- have adopted procedures governing non-audit services rendered by external auditors (including 83 percent of large firms).

Within this group, more than half not only have procedures that parallel the SEC's requirements, but they also mandate that specific processes be followed for gaining approval of any non-audit work performed by the external auditor.

Furthermore, nearly 13 percent of large companies completely prohibit their external auditors from performing non-audit services.

Estimating the Cost of Sarbanes-Oxley Compliance:

Many of the survey's respondents reported it is still too early to know the final cost to achieve Sarbanes-Oxley compliance.

CFOs surveyed offered projections ranging from $10,000 to well over $1 million, while 12 percent did not offer an estimate, stating they did not know what the costs would be. Extrapolating the survey data, the total compliance costs for all public companies combined are projected to run to several billion dollars.

Assessing the overall survey, Gibbs said, "The results show momentum is building. Corporate governance reforms are influencing behavior, as evidenced by CFOs and public companies acting on a wide array of issues that continue to reshape the governance landscape.

Companies have clearly begun the journey; however, the verdict is still out as to how long it will take for these steps to restore investor confidence. "Insights on Today's Sarbanes-Oxley and Corporate Governance Challenges is available for download at

Protiviti is a leading provider of independent internal audit and business and technology risk consulting services. Protiviti, which has more than 30 locations in the United States, Europe and Asia, is a wholly owned subsidiary of Robert Half International Inc. (NYSE symbol: RHI). Founded in 1948, Robert Half International is a member of the S&P 500 index.


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