Emerging Companies Can Delay SOX Compliance

New companies with a market capitalization under USD 1 billion will now be able to opt-out of regulations within section 404 of the Sarbanes-Oxley (SOX) Act for the first ten years after going public. This option was previously available to companies under USD 75 million.


Congressman Ben Quayle introduced the Startup Expansion and Investment Act to, “make it easier for emerging companies to access the capital necessary to expand and create jobs”. Quayle noted that removing one of the many regulatory hurdles that inhibit companies from going public would lead to more economic growth.


“While I understand the delay in SOX compliance for smaller companies, I would encourage companies to prepare for SOX compliance in advance by reading the standards well and understanding the requirements,” said Roxana Santiago, Finance SOX Manager at Hospira, Inc., and a presenter at the upcoming marcus evans 22nd Edition SOX Compliance & Evolution to GRC Conference in Chicago, Illinois, November 15-16, 2011.


“The standards do offer some flexibility and allow the opportunity to focus only on high risk areas that would detect and prevent material misstatements. Understanding the process for establishing thresholds for materiality would give the company a basis for identifying risks and documenting controls in those areas. Putting these actions into practice prior to actual compliance requirements gives executives a head start.”


Minisa Becker Capozzoli, Senior Financial Analyst at Hospira, Inc. added: “The Standard proposes starting with the identification of the company’s risks that material misstatements will not be prevented or detected. A few categories of risk include complex accounting areas such as revenue recognition, tax and accounting estimates. In addition to these, companies need to assess other risks specific to their business, such as areas with highly manual intensive process, or poor systems support. Companies will need to look beyond the standard accounting risk categories and reflect upon their business, processes and systems to identify other financial risks.”


“One of the great benefits of the SOX Act is it forces companies to be more pro-active by designing up-front preventive controls,” Alan Bedwell, Senior Financial Analyst at Hospira, Inc. highlighted. “It also forces companies to re-think and re-visit processes and controls, identify areas with existing gaps or too many controls and streamline processes, thereby becoming more efficient and productive. It offers Senior Management more transparency to the Financial Statements and holds accounting and finance professionals accountable through controls certification procedures.”


Santiago added, “This is how companies reap the benefits of SOX programs and build integrity and accountability in internal financial reporting processes. Companies have always been required to have solid systems of internal financial reporting controls. The SOX Act simply forces companies to formally acknowledge this through documentation protocols.”


One challenge with SOX compliance is cost. There are many ways to keep costs down. One way is by not doing more than the standard requires, according to Santiago. Initially SOX compliance was time consuming and manually intensive because many were doing a lot more than they needed to.


“I would encourage small companies to focus on what is ‘truly’ needed and create the buy-in and awareness within the accounting and finance functions. While the external auditors will review management’s work and provide an independent opinion, they are not as close to the business and related risks as the company, and should be challenged where applicable,” Santiago concluded.


Roxana Santiago, Minisa Becker Capozzoli and Alan Bedwell of Hospira, Inc. will be co-presenting at the marcus evans 22nd Edition SOX Compliance & Evolution to GRC Conference in Chicago, Illinois, November 15-16, 2011.


For more information, please contact Michele Westergaard at 312-540-3000 ext. 6625 or Michelew@marcusevansch.com. You can also visit the 22nd Edition SOX Compliance & Evolution to GRC website.

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