The Problem: Sarbanes Oxley (SOX) can be costly yet ineffective
In a survey by CFO Magazine, 70% of CFO’s said that the costs of Sarbanes Oxley outweighed its benefits. Once you have a mound of control objectives, narratives and flow charts, is there really any guarantee that you won’t still have exposure for financial statement surprises and write-offs?
The Solution: Get back to the basics
To get to the root of the problem, I introduced a program within my $1.5 billion group that standardized the format of account reconciliations and trained those personnel actually doing the reconciliations on the proper way to document their work. This approach was immediately adopted by the Corporate CFO as a company-wide policy. The standardized format clearly and concisely communicated the work that had been performed. It helped those doing the reconciliations to better understand what was expected of them. It made it clear that errors and adjustments were being handled on a timely basis and showed that sub-ledger activity was properly reconciled to the general ledger. Supporting policies were implemented to eliminate fluctuations in reserve accounts and to immediately report any exceptions to the policy to Corporate. This greatly simplified the work of the external auditors, reduced fees and minimized exposure of financial mistatements.
From an external Audit Manager:
A division with weak controls had just taken a multi-million write-off in more than a dozen balance sheet accounts. The division was scheduled for an external audit, but before the auditors arrived we implemented the standardized reconciliations. The Audit Manager from PriceWaterhouseCoopers said,
“Without this approach the audit would have been a 2 or 3 on a scale of 10 and taken 2 to 3 weeks. With this approach the audit was a 7 on a scale of 10 and was done in less than a week.”
This saved the company roughly $20,000 in audit fees on this one division alone.
From a CFO:
This approach gives far better assurance than I’ve ever had before that our financial statements are properly analyzed, reconciled and supported. I now know that my staff knows exactly what’s in each account in the ledger and is handling adjustments on a timely basis. It has also eliminated a lot of game playing, allowing us to manage our process rather than our earnings.
From a Manager of Accounting:
“I must say we could not live without these forms today. They have become our audit / reconciliation / control tool. The PWC auditors were here in January for our year end audit. They said several times that they wished all clients had an account analysis process like ours. They were able to take our year end book and perform much of their audit work without asking for our intervention. Thank you for taking time to help our accounting department to move up to this level and develop this tool.”
From an Accounting Supervisor:
“This approach really helped me to better understand the work I do in reconciling accounts and makes it much easier to identify reconciling items that need to be adjusted and to make sure that I book the adjusting entries correctly.”
From an Accounts Payable Analyst:
“My initial reaction after seeing the new template was “Why?!?” I was comfortable with my old form and, of course, did not want to take the time to change. Yet after meeting with you to walk through the format, I quickly realized how preparer-friendly it is! The template is simple and clearly shows the general ledger activity. Entering data is easier and faster, which in turn saves me time!!”