April 14, 2005
My single issue with the SOX process is the failure of the regulation to define materialsity in a any rational fashion, allowing the auditing firms and the PCAOB to create onerous and sometimes crippling demands to audit and document insignificant locations and financial statement accounts. This SOX process could have required documentation and testing of Revenue Recognition, Inventory Control/Valuation, Taxes, Financial Reporting and Entity Wide Controls and covered most of the risk areas of any company. Being forced to SOX a payroll function in a foreign country where the labor rate is less that 3 dollars per hour because total payroll dollars are material on an annual basis does not make a lot of sense, requires considerable expense and simply more auditors and fees. Companies that are tightly controlled or even over controlled are at a disadvantage in that more places exist for an employee to miss a signature, date a transaction or file a document. Companies may be looking for ways to take controls out of the process, thus reducing the number of places a deficiency can be generated. That should strike the committe as contrary to the reason for SOX in the first place. The committe must deal with materiality in a more rational and reasonable fashion.