SOX compliance 124



  • What happens if a company is not 100% compliant by the due date?



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  • What happens if a company is not 100% compliant by the due date? %0AI believe that a company that is not 100% compliant will not face criminal or civil penalties, but will face investor questions about the validity of their financial reporting. The effect of the Sarbanes-Oxley act is to allow investors to understand when a company’s financial statements are potentially mis-leading.%0AFailure to be 100% compliant does NOT mean that the financial statements are wrong. Nor does 100% compliant mean that there are not errors. However, compliance does indicate a lower risk of error or mis-statement, which investors will like.



  • Technically a ‘non-compliant’ company’s auditors will have to issue a SOX audit report stating that they either can not provide an opinion or that there are ‘material weaknesses’ in the system of internal controls. As stated above, that does not mean that the financials are incorrect just that the controls are weak.
    It is, in my opinion, up to the investors/market to determine the significance of non compliance - that is, will the stock price tank like it would if a restatement were required or will investors ignore the report?
    Thankfully, I’m Canadian so I’ll just wait to see what happens this annual reporting season and then act accordingly 😄
    Chris.



  • Good Topic:%0AWhen your company is not 100% compliant could mean 2 things:%0A1) Your Internal Audit dept confirms that there are significant Internal Controls that cannot be remediated within your deadline%0A2) Your External Auditors would not release the attestations on the health of Internal Controls - would recommend (Based on severity) that the management releases such Control Gaps in your 10k/10Q - ( in section 9??? under 'disclosures/ foot notes?) An internal Control gap/failure is not the biggest concern - however if such gaps/weakness - contribute collectively towards a Material weakness - that is a concern. And unlike the golden era before - bet your external auditors will not take any chances by attesting /expressing a +ve opinion - contrary to your weak control environment.%0AFailure means - what could go wrong?- %0A1) Based on the seriousness of the Disclosure - Investors who read the disclosures/ Analysts who recommend your stock - may form a negative Opinion and this could devaluate your business%0A2) The submissions are made to SEC. Remember in Sarbanes world - SEC is an enforcement agency. It has dedicated Auditors who are looking forward to initiate investigations on such companies.%0AI hope this answers your questions.%0AMadhav Vedula%0ASr. Internal Audit Consultant%0Amvedula_at_go.com


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