INFORMATION TECHNOLOGY

Home > IT > SOX Bringing Business Benefits, say CIOs

---

SOX Bringing Business Benefits, say CIOs

August 30, 2006

Sarbanes-Oxley entered the business vocabulary as shorthand for the accounting scandals that ruined Enron and rocked Tyco. For CIOs, "SOX" is taking on a new meaning: business benefits.

Early pessimism giving way

"Despite low expectations, companies have received business benefits from Sarbanes compliance," writes Allan Alter in CIO Insight. Fifty-four percent of CIOs report seeing SOX-driven benefits – up from 43 percent in 2005. What's more, twice as many CIOs say their companies surpassed compliance requirements to gain additional business benefits: 14 percent in 2006 compared to 7 percent in 2005.¹

That's a far cry from the mood among CIOs when SOX was enacted four years ago.

Back then, the work needed to comply with Section 404 – shoring up controls and taming unruly infrastructures – drove IT budgets through the roof and placed heavy demands on already overworked staffs.

The work took its toll: regulators' initial estimates were about $91,000 per company. But the final tally, according to Boston-based consultancy CRA International, came to $8.5 million.² And almost twice as many companies listed on U.S. securities markets restated their financial earnings in 2005 as did in 2004, according to San Francisco-based Glass, Lewis & Co. LLC. In hundreds of instances, the firm's report says, restatements stem from basic misapplications of simple rules or critical breakdowns in corporate controls and competencies.³

From a problem to a process

Critics often point to the high costs of compliance as a reason to repeal SOX. The American Enterprise Institute, for example, recently decried the Act as "a colossal failure, poorly conceived and hastily enacted."⁴ But according to CIO Insight, CIOs themselves are more upbeat.

One reason is that costs may be coming down. Though many companies continue to invest in new financial systems, the percentage of their IT budgets that goes to compliance fell from 8.3 percent in 2005 to 6.7 percent in 2006.⁵

More good news comes from Deloitte, whose most recent survey of SOX Section 404 Costs and Implementation Issues shows total costs (including internal costs, third party costs, and auditors' fees) falling significantly in the second year of implementation: 30.7 percent for smaller companies and 43.9 percent for larger companies.⁶

The reason? IT has completed most of the heavy lifting. "There was a lot of catch-up going on, and there were probably a lot of controls that should have been in place but were not," says Mike Lofing, an analyst at Glass, Lewis & Co. "Once those controls are in place, it becomes maintenance."⁷ As a result, companies are entering a new phase in compliance: from ramping up to managing compliance smoothly and unobtrusively.⁸

From a process to better performance

CIOs are seeing more than improved business processes. They're also reporting improvements in corporate risk management (66 percent), accuracy of financial information (45 percent), data integration (across business units and with suppliers and customers), and faster closes.⁹

The Harvard Business Review strengthens the case for SOX-related benefits. Its April 2006 article "The Unexpected Benefits of Sarbanes-Oxley" states: "A number of companies have begun to standardize and consolidate key financial processes, eliminate redundant information systems and unify multiple platforms . . . automate manual processes . . . better integrate far-flung offices and acquisitions; bring new employees up to speed faster; broaden responsibility for controls; and eliminate unnecessary controls."¹⁰

Compliance efforts drive better performance

Increased accuracy. Improved risk management. Data integration. Faster closes. Innovative companies recognize that these are also the components of an effective performance management system. To wit: 43 percent of CIOs report improved overall management as a benefit of their compliance efforts.¹¹ "The best practices for performance management and compliance are synonymous," says David Axson, former head of Corporate Planning at Bank of America and an advisor to the Cognos Innovation Center for Performance Management™.¹²

Summary

There's no shortage of opinions about SOX among CIOs. But the latest – that it can be a catalyst for improving corporate performance – is perhaps the most unexpected. By working to keep the regulators at bay, CIOs have delivered precisely what their companies need to keep their competitors at bay as well.

Find Out More Cognos Innovation Center for Performance Management Download the White Paper, "IT"s Critical Role in SOX and Regulatory Compliance" [PDF - 350 KB] Cognos Performance 2006: Register Now!

---

Sources

¹ Allen E. Alter, June 2006 Survey: Compliance Spending is Levelling Off. CIO Insight, June 7, 2006.

² Edward Cone, Compliance: Is Sarbanes-Oxley Working? CIO Insight, June 12, 2006. Amount applies to "large companies," defined in the study as having a market cap of $700 million or more.

³ ibid.

⁴ ibid.

⁵ Allen E. Alter, June 2006 Survey: IT's Compliance Efforts Finally Begin Paying Off, CIO Insight, June 6 2006.

⁶ Sarbanes-Oxley Section 404 Costs and Implementation Issues: Spring 2006 Survey Update, Deloitte, April. 19, 2006.

⁷ Edward Cone, Compliance: Is Sarbanes-Oxley Working? CIO Insight, June 12, 2006.

⁸ Allen E. Alter, June 2006 Survey: IT's Compliance Efforts Finally Begin Paying Off, CIO Insight, June 6 2006.

⁹ Allan E. Alter, June 2006 Compliance Survey: CIOs Find Compliance Brings Business Benefits, CIO Insight, June 21, 2006.

¹⁰ Edward Cone, Compliance: Is Sarbanes-Oxley Working? CIO Insight, June 12, 2006

¹¹ Allan E. Alter, June 2006 Compliance Survey: CIOs Find Compliance Brings Business Benefits, CIO Insight, June 21, 2006.

¹² Verity, John, Solving the Performance Challenge, CFO Custom Publishing, February 2006.