Even in late 2004, many executives were hoping that Sarbanes-Oxley would simply go away, become less onerous, or at least be deferred. And many thought it was a one-time event. However, compliance with Section 404 continues every year that a public company is traded on U.S. capital markets. These requirements and the associated costs aren't going away.
Starting in 2006, the SEC has mandated faster filing time lines, and one-time extensions won't be available, thus raising the bar for public companies with sloppy processes. In addition, auditors are becoming more astute regarding Sarbanes-Oxley compliance. Everyone, including auditors, will have gone through the learning experience with the first compliance cycle under Section 404.
Michael Heintz, a principal consultant at PA Consulting Group, expects that auditors of public companies will be "digging deeper, especially with third-party service providers." He predicts that this will increase the required understanding and verification of internal controls "at the fringe," such as internal controls operated by service providers.
This isn't a project you want to complete by yourself. In this increasingly complex and changing regulatory environment, you need a truly cross-functional team involved in the outsourcing negotiation—from every geographic and every functional area. It may even help to have your internal auditors on the team.
Outsourcing lets public companies manage their cost structure, including complying with Section 404. The key to realizing the benefits of outsourcing includes avoiding the pitfalls associated with Sarbanes-Oxley. A version of this article ran in Managing Offshore, also published by CMP Media.
Bryan Mekechuk is a partner in Pacific Crest Consulting Group, San Jose, Calif., and has been a member of the Canadian Institute of Chartered Accountants for almost 20 years.
How are you dealing with compliance demands and deadlines? Share your ideas at optimizeletters@cmp.com.
See Related Articles:
Homegrown Compliance, May 2004
Surviving Sarbanes-Oxley, June 2003
