|
|
During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
Money Moves, 5/24: Chocomize Co-Founder Fabian Kaempfer talks with Bloomberg’s Deirdre Bolton about the business of customizing chocolate
The president's campaign has a new rule—no cell phones allowed
In honor of remote control inventor Eugene Polley, we recognize other influential but neglected inventors who have felt the sting of stolen glory
Forget Adderall. Traders now pop chia seeds to stay focused and energized
The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Get Four
|  | SEPTEMBER 20, 2004
By Amey Stone Hardly Ready for Sarbanes-Oxley [Page 2 of 2] "LOST IN THE FOREST." Are companies sounding the alarm? Not yet, most experts say. "I believe there is probably less panic than probably is justified," says Barry Lurie, a partner in IT consulting firm Unisys' (UIS ) Global Infrastructure Services business. "I've talked to a number of clients who aren't sure how far they need to go," he says. "They sort of think they have it covered." But he says another group is finding the process a quagmire. "They're saying, 'Now that we're into it, we're lost in the forest and can't find the path.'" Companies that are running behind are scrambling for help. In many cases, neither experienced auditors nor software tools are available. Consultants and software companies say they field daily calls asking for compliance help but often have to refer callers back to accounting firms that already have all the work they can handle. "There's a real shortage of resources that really understand how to do this work," says Edelson. SAPPING TIME. Even companies that are on track with Section 404 aren't happy about it. Cost is a primary concern. A rough estimate used by Hagerty is that companies will spend $1 million on meeting the regs for every $1 billion in revenues. Trade association Financial Executives International found in August that the cost of compliance has exceeded budgeted plans by 62% on average, with a company that has revenues of $2.5 billion typically spending around $3.1 million. PSS World Medical (PSSI ), which markets and distributes medical products, estimates it will spend $1.5 million to comply and so far has found no material or significant weaknesses in controls. "In my view, we had reasonably sound internal controls before," says David Bronson, chief financial officer. "I have a hard time finding a return on that investment." He estimates it's taking 20% of his time as CFO, in addition to weekly meetings involving most of senior management. Moreover, the company's fiscal year doesn't end until next Mar. 31. PSS is "reasonably on time," he says. NEGLECTED PROBLEMS. Churay points not only to the cost of compliance but also to the time and effort, which diverts management's attention from work that would do more to help build the business. Yellow Roadway was formed from a merger last December. "There could have been upsides [from the merger] that will be more difficult to realize because of resources that have been deployed on this project," he says. Companies also may have other compliance-related risks that are going unchecked because of so much emphasis on internal controls, worries Anthony Miller, an executive vice-president at LRN, which provides software for compliance and ethics-related training. "With all the focus and resources are being spent on the Nov. 15 deadline, there's a real risk of significant exposures in other areas," he believes. Many economists maintain that the massive attention to complying with these regulations is a drag on economic growth. An Aug. 16 analysis from Moody's Investors Service noted, "Time spent complying with compliance requirements is time lost to product development and revenue enhancement." The software sector has been particularly hard hit. In a survey Hagerty conducted in September, 30% of companies said they had delayed software purchases due to Section 404, a finding that surprised him. LONG AND PAINFUL ROAD. Next year, this effort should go much better. Software companies are racing to design better tools that will aid compliance with Sarbanes-Oxley while also generating benefits from having stronger controls in place. "This started out as a process problem, and IT didn't get to the table until late in the game, which is unfortunate," says Lurie. Ultimately, strengthened internal financial controls will be healthier for Corporate America. "You want to have a mechanism in place for preventing abuses like Enron from occurring again," says Selva Ozelli, an international tax expert with research firm RIA-Thomson. "You don't want people to lose faith in the market-based economy because of a few corporate scandals." That's certainly a worthy goal. But for now, companies are more focused on the minutiae of their internal-control processes, and many of them are hating every minute of the ordeal. While the race is on, the rush to meet the Section 404 deadline is likely to eclipse most everything else. Maalox, anyone?
 Stone is a senior writer at BusinessWeek Online in New York Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2004, Bloomberg L.P.Terms of Use | Privacy Notice |
Printer-Friendly Version
