Public companies based in the Inland Empire face tough mandates intended
to curb white-collar corruption.
The Sarbanes-Oxley Act enacted in June 2002, designed to mitigate
conflicting, internal processes, requires thorough documentation from
publicly traded companies.
Though it is a positive precautionary measure, the amount of time - and
money - involved makes compliance difficult for companies, said Roger
Wadell, partner of Redlands accounting firm Soren McAdam Christenson
LLP, a certified public accountants firm in Redlands.
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CariÑO Casas / The Business Press
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David Harris, is a partner in Soren McAdam
Christenson LLP in San Bernardino. The
accounting firm has assembled a team that aids
clients with Sarbanes-Oxley Act compliance.
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Wadell did not disclose the costs associated with Sarbanes-Oxley
projects.
"I think the extent of the work necessary to comply was underrated,
therefore [companies] waited a considerable amount of time to get
started on the process," Wadell said.
High-profile scandals, particularly the demise of Enron, prompted a
stiff response from legislators to protect the interests of investors
and company employees.
The act, named after Sen. Paul Sarbanes of Maryland and Rep. Michael
Oxley of Ohio, the two main proponents of the legislation, requires
publicly traded companies - including companies with public debt - to
file documentation along with their financial statements to the
Securities and Exchange Commission.
Due to the demand for CPAs experienced with the Sarbanes-Oxley Act,
Soren McAdam Christenson created a Sarbanes-Oxley team in August, Wadell
said.
"There wasn't a lot of time when the compliance came out. Additionally,
there aren't a lot of available resources in the marketplace that have
experience [in the Sarbanes-Oxley Act]," Wadell said.
Watson Pharmaceuticals, one of the largest public companies in the
Inland Empire, expects no problems with its certification , spokesman
Chris Eso said.
"I think [compliance with Sarbanes-Oxley] is
something shareholders deserve," Eso said. "We have followed through to
the extent Sarbanes-Oxley illustrates."
Watson Pharmaceuticals' deadline for compliance is March 16,
in conjunction with its 10K filing with the Securties and Exchange
Commission, he said.
Eso refused to comment on the costs of Watson Pharmaceuticals'
Sarbanes-Oxley project.
Large public companies were required to meet a Dec. 31 compliance
deadline. Temecula Valley Bank planned to apply for a Nasdaq listing
last year, but canceled following the advice of auditors, President and
CEO Steve Wacknitz said. "At the time, we just weren't prepared for it.
We knew that the costs would be outrageous to get certified," Wacknitz
said.
Temecula Valley Bank's Sarbanes-Oxley project cost upward of $200,000,
Wacknitz said.
RSM McGladrey in Riverside helped about 15 clients with Sarbanes-Oxley
projects, Managing Director Maryellen Galuchie said.
Smaller public companies may feel confident in their ability to
coordinate and manage some aspects of compiling documentation, but
advice from a CPA should not be overlooked, she said.
"Every time the company has changes, the company has to change its
documentation," she said.
Prior to certification, public companies are required to compile
comprehensive documents outlining and defining its internal processes.
Instead of hiring expensive consultants, companies seek advice from CPAs
as necessary to compile the documents for certification by an external
auditor, Galuchie said.
"Even in the largest company, there's not usually the level of resources
... to have all those levels of controls [required by the Sarbanes-Oxley
Act.] ... That's very difficult for a lot of companies to implement,"
Galuchie said.
The costs have prompted some companies to drop their status as public
companies, she said.
In 2003, following its acquisition by Cyan Holding Co., a subsidiary of
Cyan Investments LLC, Pacer Technology, in Rancho Cucamonga quit
operating as a publicly traded company citing costs the small company
could not afford if it continued as a public company.
Dave Harris, a partner of Soren McAdam Christenson and former partner of
Ernst and Young in Irvine, supports "the spirit" of the Sarbanes-Oxley
Act, but believes the legislation should be amended to help smaller
public companies.
"The costs of these kinds of audits could be the largest expense small
companies have for their entire [fiscal] year," Harris said.
Though the Inland Empire has experienced no major cases of
Sarbanes-Oxley-related corporate corruption, protecting the public and a
company's image should remain a priority, said Paul Hiller, president of
Inland Empire Economic Partnership.
"It isn't an issue [in the Inland Empire] but there are consequences out
there and companies need to act accordingly," Hiller said.
