SOX Section 404:
PwC Partner Reflects on First Year of Implementation
15th has come and gone. While most Americans are done filing their taxes,
corporate America is busy meeting its own deadlines. But this year has
been different because it was the first year for internal control assessments
(section 404), part of the 2002 Sarbanes-Oxley Act (SOX). Randy O'Hare,
US partner-in-charge of SOX 404 for PricewaterhouseCoopers,
visited campus in April to talk about the past year and the effect SOX
has had on his job as well as US accountancy practice.
The part of SOX that has had the biggest impact on the accounting industry
is Section 404, what O'Hare described as "by far the most far-reaching
provisions." He explained that the main requirement of Section 404
is "management responsibility and accountability," because,
after the Enron scandal hit, "no one knew anything."
The other scandals that followed began to reveal a trend
until WorldCom became "the straw that broke the camel's back,"
he said. Congress stepped in and the President signed SOX within thirty
days. "Done in haste," O'Hare explained, the goal of the act
was to set up strict documentation requirements to ensure that "the
buck stops at the top."
Consequently, new accounting standards and documentation requirements
were put in place that created a workload that no one fully envisioned.
It has been "bigger than a breadbox, and five times bigger than that,"
O'Hare commented. "Be darn glad you were in school this year,"
he said to the students. "I've been in public accounting for thirty
years, and this was by far the toughest year."
A focus of 404 has been determining control deficiencies, which fall
under three categories: material weakness, significant deficiency, and
control deficiency. If a company has one or more material weaknesses,
it will receive an adverse opinion, a new "all or nothing" approach
O'Hare explained. As of March 31, out of the 2,530 companies that have
reported, 202 have received adverse opinions. The final results, however,
are still being determined because many companies could not meet the deadline
and Congress intervened with an order for a forty-five day extension.
The ultimate question is whether or not Section 404 is providing a benefit.
"My position is it's too early to make an analysis of cost/benefit
of year one," O'Hare cautioned. The past year has been a learning
experience, and therefore a lot of the start-up time and costs will subside
in the years to come. Eventually 404 will move from being "a project
to a process," O'Hare predicted.
Despite the added stress and workload, Section 404 has had an overall
positive impact on the accounting industry. "The role of the auditor
has been enhanced," O'Hare said, adding that "it's a good time
to be an accounting student."
About the Speaker
Randy O'Hare is the US partner-in-charge of Sarbanes-Oxley
404 for PricewaterhouseCoopers. He graduated from the University of
Illinois in 1971 with a BS in Accountancy and was awarded the Bronze Tablet.
He received his MBA in 1974 from the University of Chicago and was the
State of Illinois Gold Medal winner on the May 1971 CPA exam.
O'Hare joined Price Waterhouse in 1972 and was admitted to the partnership
in 1983. During his 33-year PwC career, he has been in the Chicago, New
York, Stamford, and Dallas offices. Randy has been the managing partner
of both the Dallas and Stamford offices and held leadership positions
in the firm's industry program as well as the assurance and advisory lines
of service. He has advised both multinationals and emerging companies
in numerous acquisitions, financings, cost savings and risk management
An active volunteer, he is a member of the American Institute of Certified
Public Accountants and the Texas Society of Certified Public Accountants.
-- Kelly Barron