White Papers for Sarbanes-Oxley (SOX)

Sixteen Steps: Implement a Top-Down, Risk-Based Approach to Internal Controls for Financial Reporting

Paisley

The challenges faced by many organizations over adhering to regulations and guidelines for internal controls over financial reporting have been well documented in trade journals, press articles and in company annual reports. One of the most significant and costly issues faced by many organizations has been the level of effort expended in documenting, managing and testing a large number of controls. The PCAOB Audit
Standard 2 (AS2) and the subsequent behavior it instilled into external auditors drove many organizations to spend millions on year 1 and year 2 SOX compliance. In addition, it is one of the primary drivers of the current revision towards a top-down, risk-based approach guidelines for management to conduct evaluations of internal control over financial reporting (ICFR). As a direct result of the public outcry against the onerous provisions of AS2, both the SEC and the PCAOB published revised guidelines that were placed out for comment in December 2006. This whitepaper will explore those new proposed guidelines, describe the concept of a top-down, risk-based approach and provide sixteen steps that an organization may consider when implementing a top-down, risk-based approach in accordance with these new proposed guidelines.

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