Regulatory compliance effectiveness often brings operating efficiency.
Summary
U.S. public companies are in their fourth year of Sarbanes-Oxley Act compliance efforts. Having gone through their initial section 404 audits, many are turning their attention to making adherence to the law less costly. As the scope of the regulation has grown clearer and the Securities and Exchange Commission (SEC) has stated it wants sensible enforcement, senior finance executives are in positions to make sensible investments in process and systems improvements. Ventana Research advises companies to avoid band-aid approaches because they are likely to prove to be more expensive and less secure.
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Many executives' attitude to regulatory compliance can be summed up in the phrase, "If 60 is the passing grade and we get a 61, we've obviously wasted time and money." While we have a certain sympathy for this approach, we also believe it likely to produce false economies when it comes to Sarbanes-Oxley Act section 404. Companies were able to spend less on the second year of SOX because they had paid the one-time start-up costs, had climbed the learning curve, felt fewer remediation issues and reduced audit costs because fewer controls were tested. Ventana Research asserts public companies should be able to cut the expense of complying with the law even further in ways that are likely to increase the effectiveness of their financial controls.
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