About
Ever since its first year of required compliance in 2004, Sarbanes-Oxley and Section 404 in particular has been criticized for the excessive cost and disruption it created for companies. The public debate about whether its been worth the effort has at times reached a fever pitch, as recently noted by the former Chairman of the SEC, Harvey Pitt[1], “As costs mounted, and auditors became defensive in their audits of internal control, a crescendo of criticism and despair arose, ultimately persuading the PCAOB and the SEC to revisit their prior guidance to make the beneficial purposes of the SOX 404 more obtainable, with lower costs and more focused efforts”. In this regard, certain statements from both the SEC and PCAOB December releases especially stand out[2]. At the same time, greater use of a risk based approach seems to reflect a return to the original principles of SOX and certainly of the COSO Framework.
[1] Compliance Week, March 2007 issue
[2] SEC Release # 33-8762, 34-54976 (12/15/06) and PCAOB Release # 2006-007 (12/19/06)
About the Author
Christopher D. Coigne CPA, CIA, CFE is the Senior Manager of Client Services and Product Development for BI International. For the past 5 years Chris has worked extensively with organizations seeking compliance with Sarbanes-Oxley (SOX). He has performed materiality planning and risk assessments, led facilitated control discussions, participated in client SOX Project Management Organizations, and overseen global control testing. Other projects have included managing outsourced Internal Audit activities, performing forensic and fraud investigations to aid in management’s deterrence and detection of fraud, and working to develop a web-based SOX and Internal Audit tool.
A graduate of Rowan University, Christopher’s experience includes public accounting financial audits, controllership in the insurance industry, internal audit management at Philadelphia-based ARAMARK, and consulting work for a variety of global organizations including McDonald’s, Sony, ING and Waste Management.
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Dear Mr. Coigne:
It’s good to find that you have such a good website discussing issues related to Section 404 of the SOX!
As far as I know, the SEC issued a Final Rule addressing the issue about Section 404 reporting by non-accelerated filers after exiting accelerated filing status. According to this Rule, whether and how an issuer must comply with Section 404 is determined on an annual basis. Therefore, an accelerated filer previously subjected to Section 404 reporting needs not to follow Section 404 if it becomes a non-accelerated filer.
Due to this Rule, the Center for Audit Quality expressed concerns that “… As a result of the relaxed provisions for exiting accelerated filer status, there are likely to be more instances in which an accelerated filer that had reported under Section 404 becomes a non-accelerated filer, particularly given the SEC’s pending proposal to further defer Section 404 reporting by non-accelerated filers …”. Based on your experience, do you see any accelerated filers that chose to “go-nonaccelerated” to avoid the Section 404 costs? Is this a real issue that the SEC should pay attention to?
Thanks for your reply!
Hung-Chao Yu
Professor of Accounting
College of Commerce (AACSB accredited)
National Chengchi University
Taipei, TAIWAN
R.O.C.
Accelerated filers are determined by their stock’s market capitalization. Any listed organization with a balance in excess of $75 million dollars must comply with SOX. It is possible that their market value may fluctuate above and below this threshold from time to time, but it is unlikely that a company would discontinue complying with SOX’s reporting provisions. Implementing, discontinuing, and re-implementing the testing and certification processes would be problematic for most companies. I have seen companies “go-private” to avoid the costs of compliance, but those organizations likely shouldn’t have gone public in the first place.