SOX News

New Study of 3,321 Smaller Public Companies Reveals Impact of Sarbanes-Oxley Delays

(Sept 11, 2008)-- Lord & Benoit, a SOX research and consulting firm,just published "First Year SOX Results for Small Business: Benefits of the Delays,"abrand new study of all 3,321 smaller U.S. public non-accelerated filers with fiscal year-ends between December 15, 2007 and January 31, 2008to answer a crucial question that government officials, legislators, business executives, and journalists have been asking the past four years: "Didthe continuousdelays indeadlineshelpsmaller public companies toprepare for Sarbanes-Oxley Section 404(a) compliance?"

The facts, based on Audit Analytics data, reveal that companiesdid not use the extra timewisely. For example:
*34% last minute : there is ample evidencethat34% ofnon-accelerated filer companies gave little or no considerationtothe Section 404 (a) delays and therefore completed assessments at the last minute or not all at. The combined market capitalization of these 1,143 companies with material weaknesses wasover $50 billion.
* 19% non-compliance : 12% either filed a faulty report or disclosed inadequate segregation of duties without any evidence of complying. 7% were emboldened not to do any work at all in understanding and satisfying Section 404 (a). They did not even file a report. The combined market capitalization of this group of companies wasnearly $26 billion.
* 88% discrepancies : 506 of the 575 non-acceleratedfilercompanies with material weaknesses under Section 404 (a) reported clean controls under Section 302 the quarter before--just weeks before year-end.
*19% non-compliant audit committee : The rate of non-compliant audit committees in smaller public companies was ten times greater (19.0%) compared to the percentage of accelerated filers who complied four years earlier (1.9%).
*78% ethics and competency : 78%of non-acceleratedfiler companies with adverse reports reported material weaknesses from "tone at the top/ethics" and "competency/training".

"The results are obviously disappointing" says Bob Benoit, President and Director of SOX Research for Lord & Benoit, "Perhaps the four years of delays lulled companies into thinking 404(a) would go away. Unfortunately, only a small majority used the time wisely to establish QA measures in financial reporting."
Now what?

"I believe we have just seen the tip of the iceberg", adds Benoit; "Once auditor attestation is required, we'll see another surge of material weaknesses reported to investors. Many companies are still not taking SOX 404(a) seriously and perhaps won't until external auditors have a direct means of communicating material control weaknesses to investors."

A free copy of the Report is available online. In addition, on September 25, 2008 at 2 pm ET, Lord & Benoit will host a free webinar describing this report and its public policy ramifications. The webinar is open to interestedexecutives, CPAs, auditors and journalists, and will include live Q&A. For details, visit www.Section404.org.

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