According to Compliance Week, 582 companies have – under Sarbanes Oxley’s section 404 – so far disclosed material weaknesses or significant deficiencies in internal controls in respect of last year.
Considering the amount of time that all companies have had – and the number who have not had to make disclosures – this is a disturbing number. Remember, these are meant to be serious internal control weaknesses, so its unlikely that anyone is making disclosures just to cover their backs – Moody’s is one ratings agency that talks of re-considering a company’s rating if there are disclosures. In fact, a Moody’s analyst pointed out that the disclosures called into question the management’s competence to run their business.
Apart from all the inevitable questions there must be about what the directors are actually paid for, and how come they aren’t all fired, there is a more fundamental question: if it took Sarbanes Oxley to flush out all these internal control weaknesses, what would be happening without it?
There is, apparently, a growing complaint movement from boards and directors about the requirements of Sarbanes – but it seems to me that Sarbanes didn’t come a moment too soon.