April 1, 2005
RE: Roundtable on Implementation of Internal Control Reporting Provisions; File No. 4-497
Thank you for the opportunity to comment on this important topic. We wish to provide feedback from our experience during 2004 and summarize our Section 404 compliance initiative. Even though we are a largely decentralized business, compounded by many different management information systems, we were confident that our existing controls would ultimately demonstrate how seriously we view our financial reporting responsibilities. Within our existing management framework;including, establishing strategic goals, an open culture of communication, a comprehensive and continuous actual to budget review process, routine management reporting of key performance indicators, and the ongoing dialogue with our Committees and the Board of Directors - there truly existed a robust system of controls over financial reporting and for governing our businesses.
After the release of Audit Standard 2 and all subsequent clarifications, our efforts soon became more of an exercise to satisfy our independent audit firm and their interpretations as to what was absolutely necessary to accomplish the directives for their compliance in performing the audit of our financial statements. From scoping to documentation to testing and certifying as to design and operating effectiveness - we spent significant effort and countless internal hours performing this exercise to demonstrate our thoroughness.
What we found in the end was that, indeed, our processes and controls were in fact very thorough, so much so that we uncovered only a dozen significant deficiencies, principally segregation of duties and documentation based items. And what can we show to our investors for our efforts? We identified 1,500 key controls, produced reams of documentation, performed approximately 10,000 discrete tests of controls and accumulated a price-tag that is truly astounding. Our audit and audit related fees from 2003 to 2004 increased from 1.2 million to slightly over 5 million, not including additional assistance we required from third party consultants which added an additional 1.4 million.
The point is not that Sarbanes-Oxley Section 404 is expensive, it is, and it did provide us some minor opportunities for improvement. The most confounding aspect is the lack of clarity in application of the rules. There appears to be a great span of judgment available in the practical application of these rules and the resulting work effort required to satisfy various audit firms. We believe this would be a logical starting point to focus upon - so as to ensure a common baseline from which independent accountants commence and execute their work and for which company management can plan resources in the future accordingly.
We wish to applaud the SECs efforts aimed at restoring investor confidence in the marketplace and acknowledge the important role corporate governance plays in this process. We take our role to provide transparent financial reporting very seriously and we are committed to continuously work within the prescribed guidelines. Thank you again for this opportunity to express our views.