Lord & Benoit, a SOX research and consulting firm, just published "First
Year SOX Results for Small Business: Benefits of the Delays," a brand
new study of all 3,321 smaller U.S. public non-accelerated filers with
fiscal year-ends between December 15, 2007 and January 31, 2008 to
answer a crucial question that government officials, legislators,
business executives, and journalists have been asking the past four
years: "Did the continuous delays in deadlines help smaller public
companies to prepare for Sarbanes-Oxley Section 404(a) compliance?"
The facts, based on Audit Analytics data, reveal that companies did not
use the extra time wisely. For example:
* 34% last minute : there is ample evidence that 34%
of non-accelerated filer companies gave little or no
consideration to the Section 404 (a) delays and therefore completed
assessments at the last minute or not all at. The combined market
capitalization of these 1,143 companies with material weaknesses
was over $50 billion.
* 19% non-compliance : 12% either filed a faulty report or
disclosed inadequate segregation of duties without any evidence of
complying. 7% were emboldened not to do any work at all in understanding
and satisfying Section 404 (a). They did not even file a report. The
combined market capitalization of this group of companies was nearly $26
billion.
* 88% discrepancies : 506 of the 575
non-accelerated filer companies with material weaknesses under Section
404 (a) reported clean controls under Section 302 the quarter
before--just weeks before year-end.
* 19% non-compliant audit committee : The rate of
non-compliant audit committees in smaller public companies was ten times
greater (19.0%) compared to the percentage of accelerated filers who
complied four years earlier (1.9%).
* 78% ethics and competency : 78% of non-accelerated filer
companies with adverse reports reported material weaknesses from "tone
at the top/ethics" and "competency/training".
"The results are obviously disappointing" says Bob Benoit, President and
Director of SOX Research for Lord & Benoit, "Perhaps the four years of
delays lulled companies into thinking 404(a) would go away.
Unfortunately, only a small majority used the time wisely to establish
QA measures in financial reporting."
Now what?
"I believe we have just seen the tip of the iceberg", adds Benoit; "Once
auditor attestation is required, we´ll see another surge of material
weaknesses reported to investors. Many companies are still not taking
SOX 404(a) seriously and perhaps won´t until external auditors have a
direct means of communicating material control weaknesses to investors."
A free copy of the Report is available online. In addition, on September
25, 2008 at 2 pm ET, Lord & Benoit will host a free webinar describing
this report and its public policy ramifications. The webinar is open to
interested executives, CPAs, auditors and journalists, and will include
live Q&A. For details, visit www.Section404.org.
The Lord & Benoit Report was written by Bob Benoit. Bob is President
and Director of SOX Research at Lord & Benoit, LLC, one of the most
influential SOX Research and Compliance firms for smaller public
companies. In addition to his position with Lord & Benoit, Bob serves on
the COSO Monitoring Project Taskforce. He has also served on the AICPA
Peer Review Acceptance Board in MA for 10 years, has taught Complying
with Sarbanes-Oxley Section 404 throughout the country through the State
CPA Societies and is the author of the Lord & Benoit Reports, which have
been referenced by the SEC, PCAOB, COSO, AICPA, CHH, RIA, BNA, Wall
Street Journal, all of the "Big 4" firms and nearly 200 legal,
educational and trade journals around the world. Bob is the first
evaluator to use the COSO Guidance for Smaller Public Companies, the
inventor of Virtual SOX taught on the AICPA Technology website and
research contributor to the SEC Subcommittee, SEC Concept Releases and
SEC/PCAOB Internal Control Roundtables.
Webinar for execs, CPAs, auditors and journalists on September 25 @ 2
pm ET
LORD & BENOIT
Robert Benoit
President & Director of SOX
Research
Phone: (800) 404-7794 ext: 204
E-Mail: BobB@LordandBenoit.com