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Summary
April 21, 2004 - Planning and budgeting does not play an explicit role in Sarbanes-Oxley
compliance, but Ventana Research expects auditors will pay closer attention
to this function once companies pass the initial round of section 404 certification
for two reasons. First, companies that execute the forecasting, planning and
review cycle typically have a more mature control infrastructure (which was
the prime motivation for section 404). Second, managers that plan and forecast
accurately have less of a reason to commit fraud than those that fall short
of their projections.
The purpose of Sarbanes-Oxley Section 404 is to promote greater corporate control and make it difficult for individuals to commit fraud that has a material adverse impact on the company. Companies with relatively mature control environments have completed (or are close to completing) their initial 404 compliance initiatives. Ventana Research advises companies at this stage to begin implementing the next level of financial process and systems improvements that will facilitate audits and improve the effectiveness of financial performance management systems. In our judgment, auditors will steadily raise the bar for section 404 compliance over the next several years. Companies that want to minimize their audit costs and enhance their control environment should expect to refine their processes on an ongoing basis.
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