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Sarbanes-Oxley Unconstitutional? |
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Do some Supreme Court justices harbor doubts as to the constitutionality of Sarbanes-Oxley? That’s what some are suggesting since the High Court agreed to hear a challenge to the 2002 law. The original case (Free Enterprise Fund v. Public Company Accounting Oversight Board) was originally rejected by the US Circuit Court of Appeals of Washington DC by a vote of 2-1. This willingness to hear the case is somewhat unusual as this has been the only ruling and no conflicting court decisions exist. Since this doesn’t fit the typical profile of a case that reaches the Supreme Court, the question is raised as to the particular interest by the justices. The Free Enterprise Fund (FEF) is a pro-business conservative organization that promotes economic growth, lower taxes and limited government. The FEF contends that the Public Company Accounting Oversight Board (PCAOB) violates the constitutionally mandated separation of powers. The members of the PCAOB are appointed by the SEC (an independent federal agency) and therefore are not selected or able to be removed by the President. Further, the PCAOB is funded by fees paid by publicly traded companies and their budget is not controlled by congress. The PCAOB power is therefore improperly unchecked, as per the argument presented by the FEF. |
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There are four items to established as the foundation for SOX. In conjunction with developing the Approach as described in Section One, the following items will need to be in place: - Communication with Auditors
- Company Policies
- Process Narratives
- Authority Matrix
As we stated in Section One, you can not have enough communication with your external auditors. As they are the ones that will have the final say in your SOX compliance efforts, you need to ensure they understand your approach and agree, at least in principle, with your approach. While you should not expect them to formally accept your procedures in writing or provide consulting services to help with your implementation (as this would be contrary to SOX), having an open dialogue will ensure there are no surprises in the work they can expect from you and if there are any gaps allow them the chance to acknowledge these while there is still time to correct anything lacking. |
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Good Testing Documentation |
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Under Section 404 of Sarbanes-Oxley management is required to not only document their key controls over financial reporting but to also test those controls to ensure they are operating as intended. This testing by management is an important part of the compliance effort and also a potential area for saving costs. The more the external auditors can rely on management's testing, the more they can reduce their own testing. By designing a good Approach (Section 1), laying a solid Groundwork (Section 2) and keeping excellent Testing Documentation (Section 3), you will be able to save time and dollars. There are three main areas we will cover in this section: 1. Determining sample sizes 2. Use of automated controls 3. Documentation expectations |
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SOX Insights
Get the template that includes all 8 cycles (145 Key Control Activities and related suggested testing) for only $25. 