The National Retail Federation has submitted comments to the Securities and Exchange Commission on the impact of Sarbanes-Oxley Section 404, encouraging the SEC to review lessons learned from the past year of SOX implementation. Members of NRF's Internal Audit & Compliance Council and Financial Executives Council were actively involved in creating the letter's key points.
“We support the principles of sound and transparent financial reporting and the underlying importance of effective internal controls,” said NRF President and CEO Tracy Mullin in a letter to SEC Chairman William H. Donaldson. “We have concerns, however, that confusion about and inconsistent application of the Act have undermined its objectives and effectiveness. We further question whether the initial intent of this Act–to restore investor confidence–has been balanced against the cost of its implementation.”
In the letter, NRF asks the SEC to direct the Public Company Accounting Oversight Board (PCAOB)* to: issue clearer guidance to ensure consistency of Section 404 application by the public accounting firms, provide direction on the use of materiality when determining tests of controls, and allow independent auditors to place more reliance on internal audit and management's internal control testing.
According to a recent Financial Executives International survey of 217 public companies with average revenues of $5 billion, implementation of Section 404 cost companies an average of $4.36 million last year, 39% more than they had budgeted. In addition, 94% of all respondents said the cost of compliance exceeded the benefits.
The SEC is expected to review NRF's comments in advance of an April 13 roundtable that will discuss experiences of registrants, accounting firms and others in implementing the new internal control requirements under Section 404 of the Sarbanes-Oxley Act of 2002.
