What happens when NYSE Listed Company goes Private? 1447

  • If a NYSE Listed Company subject to SOX goes private , what are the implications from Sox compliance point of View?
    I mean once privatized , will the new Management get rid of the Sox auditors?

  • If a company no longer must comply with SOX due to its form of organization, its management will determine if it will retain company auditors and/or use of consultants. Thus, the decision is with management whether to retain or reassign employees that were previously performing SOX compliance functions.
    Some companies that are not required to comply with SOX develop process documentation that may be used if the Company should one day be required to company with the Act and to improve upon its controls over financial reporting. Again, the decision lies with the Company’s management.

  • That is correct. No current requirements for private companies. The bulk of the work is in the initial documentation. It would be a shame to let that go to waste. Hopefully, companies going private will keep that documentation updated, but scale back on formal controls testing to save money. They would also not have their external auditors doing any SOX work.

  • This happened with one of my clients. They no longer had a need for their outside consultants (me) or the auditors. But, they kept the employees who had been dedicated to SOX and continued with a ‘lite SOX’ approach to maintaining the control framework. Because their going private was the result of being acquired by a private company, I belive their plans are to eventually absorb these employees into the internal audit department.

  • I agree with these good comments by fellow professionals noted above 🙂 There are benefits in not abandoning SOX compliancy controls. Some of the SOX compliancy testing and activities might be lightened or even stopped. Still, a company returning back to a ‘privately held’ status would benefit by using the 80/20 rule and continuing with good documentation and change control practices.
    The key reason is that just because you’re a privately held company doesn’t mean you will not get audited or have a need for best practices in accounting. In fact, governmental entities can always audit privately held or mutual companies, (e.g., IRS, state/federal regulators depending on your industry, etc).

  • I would also argue that most companies, if not all of them, identified some internal control weaknesses during their first and second years through under SOX. Proper internal controls have been required since at least the FCPA. Given the fact that most everyone found some weaknesses, it really makes good business sense to continue with some sort of controls monitoring even if privately held.
    I agree with the 80/20 rule. In fact, that should be where SOX ultimately leads us anyway as we look to take a more risk-based approach to controls monitoring.

  • I am not clear about 80/20 rule in the Sox context; Please elaborate

  • Achieve 80% coverage with 20% of the effort. In other words, there are a lot of things that are easy to do that will get you very good coverage of controls monitoring. To have complete coverage, you spend a disproportionate amount of effort on the remaining items.

  • The 80/20 rule is an old management axiom, which means that ‘we can get 80% of the benefit for 20% of the work effort’ . %0AAs with all these old sayings, it’s not an absolute rule. Still, many times I’ve found the 80/20 rule can work – if you have the option to focus only on the most siginificant benefits that are easy to achieve, without the need to do the full job.

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