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Harald Will
President & CEO
ACL Services Ltd.

Editor's note: Each month, we ask a Directors & Boards reader to comment on critical issues facing directors today. If you'd like to participate in this section in the future, please email Scott Chase.

Why, after several years since the Enron scandal, have the majority of US companies not implemented key provisions of Sarbanes-Oxley to protect investors?

Since Sarbanes-Oxley legislation was passed in 2002, it has created a whole new public company landscape for corporate governance, transparency, company efficiency, and fraud detection in the capital markets. Not only are companies required to implement effective internal controls around their financial reporting processes, they must also report on the effectiveness of these controls to investors and key stakeholders. But the legislation grouped companies into two categories, accelerated and non-accelerated filers. Accelerated filers (with a market cap above $780 million) are going into year three of their SOX compliance reporting and make up about 20 percent of public companies in the U.S.. Small to mid-cap companies (non-accelerated filers) have not been required to file yet and make up the majority of public companies in the U.S. – however the Securities and Exchange Commission (SEC) will require them to start compiling with SOX by December of this year.

So while the majority of companies have not yet implemented and filed under SOX, that’s only because they are not required to do so yet. This will change by the end of the year.

What actions did the SEC take in May and how will this effect smaller public companies?

Last spring, the U.S. Securities and Exchange Commission chartered the Advisory Committee on Smaller Public Companies to assess how the current regulatory system affects smaller companies, and whether the costs imposed by the regulations are proportionate to the benefits. Primarily focused on the impact of Sarbanes-Oxley (SOX), the Advisory Committee was tasked with identifying methods of minimizing costs and maximizing benefits for smaller companies trying to meet compliance requirements.

On May 15, the SEC issued an announcement titled Next-Steps for Sarbanes-Oxley Implementation. It contains a list of steps the commission will take in response to the advisory committee report and a final extension for small to mid-cap companies until December 2006.

The steps outlined in the May 15th announcement by the SEC address concerns such as lack of specific guidance, unfamiliar regulations, overly conservative judgments, and lack of specialized resources. Once these are addressed, it should make the process of complying with the internal control reporting requirements, more efficient and cost-effective.

How do these actions of the SEC affect Fortune 1000 directors and board members in terms of their risks and responsibilities?

That depends on who you ask. Because smaller organizations can have all their decision making capabilities centralized to a small handful of people, giving business unit and financial managers clear insight into the financial transactions underlying all the financial reporting shows an organization’s “tone at the top” strategy is not only just lip-service to good governance – but a coordinated effort that creates greater accountability across the enterprise.

Others have argued that because there are less people and resources in smaller public companies this kind of segregation of duties (among management, the board, and chief officers) and monitoring of internal controls is not possible as currently mandated.

We believe tone at the top is critical for long-term good governance and that the benefits of documenting, testing and certifying the adequacy of internal controls is just as important in smaller companies. All companies and their external auditors need to leverage technology to reduce the cost of compliance and make it sustainable. The reality is that technology is already available and priced within a range that makes it accessible to most small-to-mid cap companies.

What impact do these actions have on investors?

Once the SEC has completed clarifying the issues outlined in the May 15 announcement, all public companies reporting under SOX legislation should have the information they need to complete accurate filings. Getting all companies to one standard, with rigorous but fair requirements for reporting on the critical information contained in financial statements, will only benefit investors. We believe that compliance with SOX 404 will result in better run companies, with more accurate and timely financial statements,   and early detection and prevention of fraud. This will support renewed investor confidence in the US capital markets.

What impact will these actions have on public companies?

There are an estimated 8,000 companies listed with the SEC who have not yet started their SOX 404 compliance efforts. These non-accelerated filers now have a unique opportunity to learn from those who have gone before them and to implement compliance strategies that not only meet SOX 404 requirements, but also help them run a more efficient business. In fact, many will improve bottom-line results by strengthening their internal controls. We are urging small and mid-cap companies to get started now by implementing effective technology solutions for effective SOX compliance and improved business oversight and efficiency.

Who will be the winner and losers on this issue?

Through better planning and technology solutions that continuously test financial transactions for errors, exceptions, and control weaknesses, organizations today should not fear compliance requirements but see them as an opportunity to strengthen an important area of their business. Sarbanes-Oxley could be more than just a ticket to ride; it could be a passport to greater profitability and better standardization of policies throughout the enterprise. Both larger and smaller companies can benefit from tighter internal controls and the processes put in place to meet their compliance requirements. If done right, SOX 404 compliance will be a win-win situation and the only losers will be the companies who weren’t interested in accuracy and integrity in the first place.

Harald Will is president and CEO of ACL (http://www.acl.com), a leading global supplier of software solutions for the internal, external and public sector audit markets.

Will regularly speaks at global conferences, and is quoted in publications such as Business Week, Investor’s Business Daily, and ComputerWorld on Sarbanes-Oxley compliance, audit best practices, and as a subject matter expert on data analytic technology and its role in enabling insight into the integrity of business activity. He was recently named one of Treasury & Risk Management magazine's "100 Most Influential People in Finance" for 2005.

He is chair and a member of the board of directors of AceTech, the Academy for Technology CEOs, and was named one of the "Top 40 under 40" business people in Vancouver.