June, 2003: The Sarbanes Oxley Act of 2002 is the most significant change in financial reporting since the Security Act of 1934. Corporate governance has become a major overriding issue for senior executives in corporations across the country. It impacts all industries and all publicly traded companies. In fact, this act also indirectly effects privately held companies as they are also being asked to hold to a higher degree of governance by stakeholders.

 

It is estimated that Chief Financial Officers now spend 15% to 20% of their time on Corporate Governance issues - 2 years ago this was estimated at 5% or less. It is also estimated that Fortune 1000 companies will need to spend 7500 to 25000 hours for this task, depending on size, number of locations, complexity, etc. In addition, companies expect additional spending of $500,000 for evaluation software, outside consulting and employee training.

 

Sarbanes Oxley has 2 main provisions we will cover in this article:

 

Section 302 requires that the Chief Executive Officer and the Chief Financial Officer of publicly traded companies must personally certify they are responsible for disclosure controls and procedures.

 

Section 404 mandates an annual evaluation of internal controls and procedures for financial reporting. In addition, the company's independent auditor must issue a separate report that attests to management's assertion on the effectiveness of internal controls and procedures for financial reporting.

The Section 404 provision has significant ramifications for publicly traded companies. It will and is requiring companies to look at their current controls and procedures and provide substantiation for the external auditor as to the adequacy of the control systems.

 

How are companies dealing with this enormous project?

 

Many Fortune 500 companies are engaging an outside provider, either a Big 4 Firm - (However, the current audit firm is not allowed to perform both the audit and the evaluation) or an outside consulting firm to provide a roadmap to meet this requirement. In addition, significant hours are needed by internal and external resources to document and implement any changes in control systems and hours by the external auditor to test the results and provide the report on the control systems.

 

Middle Market publicly traded companies are exploring handling the task with an internal leadership group and rely on outside providers to assist with the implementation.

 

Many companies in both categories are exploring software tools and testing methodologies that will (i) simplify the process, (ii) demonstrate specific tests being conducted to give assurance to the audit committee's that the company is being compliant, and (iii) pass an audit.

 

Testing of transactions that move to and from legacy systems and ERP systems are quickly being recognized as a critical area for consideration.

 

Relevante is here to assist you in dealing with the significant drain on resource this project will have on your accounting and financial team. Our team of accounting and technology professionals is poised and ready to work with and assist your team in the areas of documenting and implementation.

 

 

Why use Relevante?

 

We are focused on assisting our clients in this capacity and have been recruiting candidates to match the skill sets needed for the job.

 

Our resources are more cost effective than a Big 4 or similar consultative provider.

 

We will work with you to match resources with the deadlines you are facing.

 

We can provide experienced resources from project management, accounting and auditing experienced professionals, IT professionals and business process reengineering.

 

Finally, we work with both Fortune 1000 and Middle Market companies by assisting you in other ways, including backfilling positions within your accounting and IT team - allowing them to participate in the project - while our resources fill the positions of your full time employees. Finally, we commit to not remove our professionals during the life of the project.

 

The implementation of Section 404 applies to publicly traded companies for year-ends beginning June 15, 2004. We know you are gearing up now for this project. So contact Relevante and let's discuss the many ways in which we can assist you through the challenges of Sections 302, 404 and other significant workload created by Sarbanes Oxley.

 

 

You may reach us at:

 

William Brassington, CPA
p. 610-832-0430
e. wbrassington@relevante.com

 

John McAvey
p. 610-832-0430
e. jmcavey@relevante.com

 

Shaun McCallum
p. 610-832-0430
e. smccallum@relevante.com