According to PricewaterhouseCoopers most recent Management Barometer survey, most U.S. multinational companies are moving ahead with preparations for compliance with internal financial control provisions of the Sarbanes-Oxley Act of 2002, even though implementation of the provisions has been delayed by a year.

In addition, more than a third of those firms are are moving faster than required, and are either planning or considering compliance for fiscal 2003, a year early.

Section 404 of the Sarbanes-Oxley Act requires companies to file a management assertion and auditor attestation on the effectiveness of internal controls over financial reporting. In the final rule provisions, the compliance date was extended until June 15, 2004 for most U.S. filers.

Voluntary Compliance Ahead Of The Law

According to the survey, 60 percent of senior executives said their company plans to retain its original schedule for most Sarbanes-Oxley Section 404 preparation, despite the extension. 37 percent said they would spread those activities over a longer time horizon.

Most surveyed companies are already deeply involved in the planning and the design of controls; however, few have yet gone beyond early testing of controls and any related problem solving:

Near

Early In Completion/ Not

Stages Middle Completed Reported

- Scoping and planning

preparatory activities 23% 37% 37% 3%

- Documenting and

evaluating design

of controls 37% 50% 13% --

- Testing control

effectiveness 77% 20% 2% 1%

- Solving identified

problems 83% 14% 2% 1%

"Most big companies are well along in their planning and are in the process of documenting and evaluating their controls," said Lynn Edelson, Americas Leader of Systems and Process Assurance for PricewaterhouseCoopers. "But there is a tremendous amount of work to be done in testing the effectiveness of internal controls and solving any problems that are identified. Companies that have not yet begun their preparations need to start immediately."

Taking Extra Steps

Top executives have a heightened concern about internal controls over financial reporting this fiscal year, and many are taking additional steps:

Over three quarters (76 percent) report that their audit committee

expects more-extensive testing of internal controls over financial

reporting this year. Seventeen percent say that more testing is not

expected, and seven percent are not sure.

Nearly two-thirds (64 percent) expect their external auditor to

perform more extensive testing of internal controls over financial

reporting this year. Twenty percent do not expect more testing and 16

percent are not sure.

More than a third (36 percent) of companies are planning or

considering preparation of a management assertion and auditor

attestation in fiscal 2003. The remainder (57 percent) is not, or is

uncertain (seven percent).

"Audit committees are becoming much more proactive in response to Sarbanes-Oxley, and senior management at many companies is taking extra steps a year in advance to assess the effectiveness of their internal controls, rather than waiting to meet the deadline," Edelson said.

Next Year: Reduce Compliance Costs

Nearly all those surveyed (86 percent) expect to streamline and reduce the cost of their company's Sarbanes-Oxley compliance process in calendar year 2004.

32 percent of senior executives expect to place a major focus on cost reductions, while 50 percent expect to give cost cuts moderate attention and 13 percent limited attention.

"Once companies have completed most of their Section 404 readiness work, their next challenge will be to make the process more effective. Although many big companies will look for cost reductions, it's too early to tell where they will be able to make cuts given the size and complexity of the compliance process," Edelson said.

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