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Companies were “scrambling” to file annual reports in the first year of Sarbanes-Oxley, the federal act that established rules for audit committees, according to Dennis Chookaszian, ’68. In year two, the process will be easier as companies learn to follow frameworks for compliance, said Chookaszian, retired Chairman and CEO of CNA.
Sarbanes-Oxley will remain expensive for companies, with costs leveling at 80 percent of the first year Chookaszian told members of the GSB Risk Management Group and the Professional Risk Managers’ Professional Association (PRMIA) in his presentation, “The Evolving Role of Risk Management on a Sarbanes-Oxley World” at Gleacher Center April 25.
After cost, the big issue in year two will be establishing controls. “At the core of having well-structured, transparent reporting is a sub-level of certifications,” Chookaszian said. “Sub-certifications depend on controls. Companies must first identify their number of controls.”
To do so, “ Companies have to find a framework under which they evaluate risk management,” Chookaszian said. He believes the best tool is the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk Management Integrated Framework (ERM). “The COSO ERM will become the standard for evaluating risk management issues,” Chookaszian said.
He also thinks Extensible Business Reporting Language (XBRL) is an “extremely significant development. The SEC wants people to report in XBRL,” Chookaszian said. “It will be mandated.” When XBRL is fully implemented, electronic financial statements will be on the Internet in a standardized format “It’s the next set of frameworks,” Chookaszian said.
In the meantime, the second year of Sarbanes-Oxley will see further guidance for small companies that can’t afford to pay for implementation, and not-for-profit organizations will establish controls even though they don’t have to report.
While some companies think Sarbanes-Oxley “is not worth the cost,” Chookaszian said, “the value is smaller failings over the next decade. Fraudulent reporting will be mitigated. Over time, Sarbanes-Oxley will bring about much stronger credibility.”
Carmen Marti