Addressing Fluidity in the SOX Environment

The Backlash

Ever since the first year of required compliance in 2004, Sarbanes-Oxley and Section 404 in particular has been criticized for the excessive cost and disruption it created for companies. The public debate about whether it's been worth the effort has at times reached a fever pitch. As recently noted by the former Chairman of the SEC, Harvey Pitt¹, "As costs mounted, and auditors became defensive in their audits of internal control, a crescendo of criticism and despair arose, ultimately persuading the PCAOB and the SEC to revisit their prior guidance to make the beneficial purposes of the SOX 404 more obtainable, with lower costs and more focused efforts".

In this regard, certain statements from both the SEC and PCAOB December releases especially stand out². At the same time, greater use of a risk based approach seems to reflect a return to the original principles of SOX and certainly of the COSO Framework.

¹Compliance Week, March 2007 issue
²SEC Release # 33-8762, 34-54976 (12/15/06) and PCAOB Release # 2006-007 (12/19/06)