SEC Offers Pragmatic Advice on Essential SOX Work

SEC Offers Pragmatic Advice on Essential SOX Work
AMR Research: One of the frustrations with the first year of Sarbanes-Oxley compliance is ambiguity surrounding requirements. Companies report that firms impose different standards on clients relating to control work that must be performed under Section 404. The SEC recently issued welcome guidance that better defines the boundaries. First, Section 404 is limited to processes and controls associated with financial reporting. Second, the SEC will hold management to a standard of reasonableness, not perfection, in certifying the efficacy of controls. A company doesn't have to get everything perfect, and it may take costs into account when deciding what constitutes reasonable controls.

Balanced against this is the liability a company assumes if its compliance efforts fall short. Essentially, the SEC is asking companies to make reasonable decisions which, in this case, may mean having complaince activities examined by a competent third party.