Oversight Systems Survey Identifies Growing Benefits to SOX Compliance
Financial executives cite higher-than-expected
year-two Sarbanes-Oxley costs
ATLANTA (January 30, 2006) – Oversight Systems Inc. today released
the results of the 2006 Oversight Systems
Financial Executive Report on Sarbanes-Oxley.
The survey of 261 financial executives identifies
growing benefits of SOX compliance and specific
compliance goals for 2006.
The findings show an across-the-board increase
in the benefits that respondents experienced
in 2005 from SOX compliance as compared
to those reported in 2004. The reported
benefits of improved financial reporting
accuracy almost doubled to 47 percent from
27 percent in 2004. Other reported increased
benefits include the ensured accountability
of individuals involved in financial reports
and operations, up to 65 percent from 46
percent in 2004. The report can be downloaded
at www.oversightsystems.com/survey.
"Corporate fraud and inaccurate financial
reporting drove the creation of Sarbanes-Oxley,
and it’s clear that the medicine is addressing
the disease it was intended to fight,” said
Dana Hermanson, Dinos Eminent Scholar Chair
of Private Enterprise at Kennesaw State
University. Hermanson is also an advisor
to Oversight Systems and co-author of the
COSO-sponsored research report Fraudulent
Financial Reporting: 1987-1997, An analysis
of U.S. Public Companies. “This legislation
has a lot of meat to it, which brings about
significant cost and much needed benefits."
The survey also reported increases for SOX
compliance benefits, including:
- Reduced errors in financial operations, up to 48 percent from 31 percent in 2004
- Empowered board audit committees through increased information, up to 40 percent from 25 percent in 2004
- Decreased risk of financial fraud, up to 40 percent from 33 percent in 2004
- Strengthened investors’ view of the company, up to 26 percent from 20 percent in 2004
"While the law strengthens a company’s
controls over financial reporting, SOX compliance
also creates an opportunity for financial
executives to evaluate their financial processes,”
said Patrick Taylor, CEO of Oversight Systems.
“These results show that many companies
have benefited from their investment in
SOX compliance by improving their overall
financial operations with a stronger control
environment."
Emerging Role of
Continuous Monitoring
The survey also identified a trend for compliance
and financial operations to adopt continuous
monitoring. Continuous monitoring of financial
processes and real-time transaction inspection
can serve to automate manual controls for
SOX compliance and, more importantly, strengthen
their overall control environment.
Financial executives identified multiple
roles that continuous monitoring of financial
transactions can play in their organization
throughout their financial processes. In
fact, 69 percent feel it can serve as a
detective control, 61 percent view it as
a preventative control and 53 percent think
it can help test the effectiveness of other
controls.
"While the first two years of SOX compliance
were achieved with manual labor for enforcing
and testing controls, companies are now
looking for ways to mechanize the process,”
said Joseph V. Carcello, co-founder & director
of research for the University of Tennessee's
Corporate Governance Center. “Continuous
monitoring is the next big frontier for
auditors and compliance with Section 404
of Sarbanes-Oxley." Carcello is also an
advisor to Oversight Systems.
Real-time transaction monitoring provides
financial executives with compliance and
operational benefits. Two-thirds of financial
executives believe continuous monitoring
both strengthens a company’s control environment
and reduces errors in financial processes.
Nearly half say continuous monitoring of
financial transactions automates the testing
of control effectiveness.
SOX for Small Caps,
Non-Profits & Private Companies
The survey also identified a possible trend
among organizations not required to abide
by SOX compliance guidelines. Nearly half
of financial executives, 45 percent, believe
some elements of SOX will be rapidly adopted
by private companies and non-profit organizations.
Almost three-quarters of financial executives,
72 percent, say that the requirements of
Section 404 of SOX regarding internal controls
should apply to all public companies regardless
of size. These results contradict much of
the public outcry against SOX, which has
led to the delayed enforcement of Section
404 for non-accelerated public filers.
"Section 404 should be enforced for all
public companies with varying standards
for smaller companies,” Hermanson said.
“Small companies can have less formal controls
and less rigorous documentation, but I’ll
be concerned if smaller companies are not
required to have their controls independently
audited. I don’t see much value in a company’s
management telling you how great their controls
are."
No Break on Year-Two
Compliance Cost
The increased benefits companies are experiencing
do not come without their cost, however.
In fact, 37 percent of financial executives
say SOX compliance created a cost burden
that suppresses stock prices (up from 33
percent in 2004), and 13 percent feel that
SOX decreased their ability to pay out dividends,
because compliance expenses are a significant
drain on earnings – essentially no change
from the 2004.
In fact, the majority of financial executives
report that their companies paid more for
year-two compliance than expected. In 2004,
42 percent of financial executives reported
that they expected to spend less than half
of what they did as compared to year-one
compliance costs. In reality, only 19 percent
realized the expected savings on year-two
costs.
"SOX compliance costs are still driven by
Section 404 of the law – the demand for
stronger controls that are signed off on
by management and tested by external auditors,"
said Todd DeZoort, Accounting Advisory Board
Fellow at The University of Alabama and
an advisor to Oversight Systems. "Many companies
are still figuring out what's actually needed
for compliance with Section 404, and external
auditors are still settling their 404 audit
methodologies."
2006 Compliance
Goals
Looking forward to 2006, the survey asked
financial executives to identify their goals
for the year as they relate to SOX compliance.
The two most popular goals involve reducing
costs internally, supported by 61 percent,
and externally, supported by 59 percent.
Half of respondents, 50 percent, would like
to automate manual processes with IT solutions,
while 42 percent want to focus on the benefit
of compliance through the quality of financial
operations. Forty percent of respondents
would like to reduce both the number of
key controls and the reliance on consultants,
and 28 percent desire an increase in morale
among those employees responsible for compliance.
About the 2006
Oversight Systems Financial Executive Report
on Sarbanes-Oxley
Through a combination of an invitation-only
online survey and survey intercepts, 261
financial leaders from across the U.S. participated
in this study. Titles of those surveyed
included chief financial officer, chief
audit executive, controller, treasurer,
vice president, director and internal auditor.
This study follows the November release
of the 2005 Oversight Systems Report
on Corporate Fraud, a survey of certified
fraud examiners which found most fraud examiners
view SOX as an effective tool in fraud identification,
though few think it will change the culture
of business leaders. Also recently released
was the 2005 Oversight Systems Financial
Executive Report on Risk Management,
which found that CEOs are placing a greater
emphasis on risk management, although many
companies are struggling to implement the
necessary changes.
Other research studies by the company include
the 2005 Oversight Systems Financial
Executive Report on Sarbanes-Oxley,
which found nearly half of financial executives
feel the biggest issue related to compliance
is maintaining the morale of the employees
responsible for compliance, and the 2004
Oversight Systems Financial Executive Report,
the industry’s first examination of the
impacts of SOX as felt by corporate financial
executives. All these research studies can
be downloaded for free by visiting www.oversightsystems.com/survey.
EDITOR’S NOTE:
Camera-ready charts and graphs of the findings
from the 2006 Oversight Systems Financial
Executive Report on Sarbanes-Oxley are available by contacting Donna Askew
by phone at 770.984.4650
or by email at donna.askew@oversightsystems.com.
About Oversight Systems, Inc.
Oversight takes continuous monitoring to the next level by combining an audit data warehouse, advanced analytics and workflow into a single, integrated, application. By inspecting each step of individual transactions across systems, Oversight identifies errors, control violations and fraud to drive higher levels of performance and compliance. Oversight's platform automates the entire life cycle finding problems in business processes, fixing those problems and proving the problems were resolved. Oversight is the solution of choice for those CFO's, CIO's and CISO's serious about compliance and enhancing their financial performance. For more information, visit www.oversightsystems.com.
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