The state of compliance

Internal Auditor, June, 2005 by Anne Scott

INTERNAL AUDITOR RECENTLY HELD A FOCUS GROUP TO HELP DETERMINE if the magazine is meeting the needs of its readers. One point that came through loud and clear was that many readers want more information on how to efficiently and effectively comply with new governance rules and regulations. Thus, this issue includes a special report, beginning on page 49, on how affected companies around the world are getting their ducks in a row when it comes to compliance with the U.S. Sarbanes-Oxley Act of 2002 and other governance mandates.

After spending a considerable amount of money to comply with Section 404 of Sarbanes-Oxley, many companies are searching for ways to better manage costs in the future. The high cost of compliance was a major concern of most of the issuers, auditors, and investors who participated in the April 13 U.S. Securities and Exchange Commission roundtable on implementing Section 404. On May 16, the Public Company Accounting Oversight Board (PCAOB) responded to the participants' comments by acknowledging that the first round of internal control audits cost too much and issuing a board policy statement regarding implementation of its Auditing Standard (AS) No. 2, "An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements," as well as a series of staff questions and answers. (Additional information on the PCAOB response can be found on The IIA's Web site at www.theiia.org.)

In releasing the new information, PCAOB Chairman William McDonough said, "Through the guidance we issue today, as well as our upcoming inspections, we are committed to seeing that AS No. 2 is implemented in a manner that captures the benefits of the process without unnecessary and unsustainable costs."

In fact, many companies are beginning to see beyond the huge costs to the benefits derived from compliance. A recent study sponsored by The IIA Research Foundation reveals that companies are seeing major improvements in their control environment and other areas in the wake of compliance efforts. As part of our special report, Larry Rittenberg and Patricia Miller, authors of the study, discuss several of their findings.

In addition, Bill Douglas offers some practical tips on Section 404 project management. The documentation process he describes is designed to save companies both time and money in their compliance efforts.

The authors of this month's cover story caution internal auditors, however, to remember that their work with management on its Sarbanes-Oxley documentation, analysis, and testing activities is just part of their corporate governance responsibilities. The authors discuss the other roles internal auditors should be fulfilling to be a sturdy leg of the governance table (see page 43).

As readers continue to address the many new corporate governance requirements, I hope this issue's content helps them find their footing in the increasingly demanding regulatory environment.