By Ryan Godbey, CPA.
Many companies assume their SOX 404 compliance program has reached maturity. The narrative sounds like this:
“Our controls are rationalized, processes are streamlined, and resources are adequate.”
It’s a reassuring belief, but does it hold up to reality? In short, no. Significant control failures are surfacing—even in long-established SOX programs.
The Growing Evidence of SOX Weaknesses
Several high-profile companies that have been subject to SOX 404 since its inception over 20 years ago have recently announced large accounting errors: A multinational firm in the agriculture dismissed its CFO after discovering profit inflation in a fast-growing business unit. An internal audit at a large retailer exposed a deliberate misstatement of delivery expenses by an accountant, impacting financial statements.
If you’re thinking these must be isolated cases, think again. A Financial Times analysis reported that in just the first ten months of 2024, 140 public companies declared their previous financial statements unreliable due to material errors—a nine-year high. This raises an urgent question: Just how effective are today’s SOX programs?
Why the "Maturity Myth" Persists
Despite these warning signs, many organizations remain overconfident in their SOX compliance. Here’s why:
1. Fear of Repercussions. Employees hesitate to report control weaknesses due to fear of backlash—from management, boards, or external auditors. This creates a culture of silence, where risks remain undiscovered until they result in a major failure.
2. Over-Focus on "Clean" Audit Reports. Many organizations equate compliance with success, measuring their SOX effectiveness by whether they receive a clean audit opinion—rather than assessing whether their controls are actually mitigating risks.
3. Lack of Fresh Perspectives. SOX teams often become entrenched in routine. Without external reviews or new talent, they risk missing emerging threats—especially in industries with evolving risks like AI, crypto, or supply chain disruptions.
The Road Ahead: How to Build a Stronger SOX Program
To avoid complacency, companies must treat SOX compliance as an evolving process—not a static checkbox. Here’s where to start:
Set the Tone at the Top: A strong SOX program starts with leadership fostering a culture of transparency and accountability. Boards, audit committees, and executives must demonstrate that identifying risks and control gaps is a sign of strength, not failure. Success in this area involves several key actions:
- Championing Transparency: Leaders should normalize discussions about risks and openly share lessons learned from identified gaps. By promoting transparency in meetings and communications, they emphasize the importance of addressing risks proactively.
- Aligning Leadership Actions with Expectations: Boards and executives must lead by example, participating in risk assessments, addressing gaps, and demonstrating their own accountability.
Redefine Success Metrics: Success in SOX compliance should extend beyond achieving clean audit reports to encompass a broader, more strategic perspective. Organizations can measure and evaluate success by focusing on the following key areas:
- Internal vs. External Findings. Assess the portion of gaps identified internally in all areas – including process understanding, risk identification, control design, and operating effectiveness.
- Adaptability to Emerging Risks. Determine how well the program has evolved in response to emerging risks, such as cybersecurity threats, AI, or supply chain disruptions.
- Clarity of Control Design: Evaluate the specificity and clarity of internal control design for each business process. This includes detailed descriptions of all relevant control attributes, the information used in its operation, and the expected control evidence.
Bring in Fresh Perspectives: SOX programs can become insular over time, with teams falling into familiar routines that may limit their ability to identify and address new or evolving risks. Injecting fresh perspectives is crucial for breaking out of this “audit echo chamber” and ensuring the program remains robust and forward-looking.
- Encourage Participation in Industry Forums: Have team members actively participate in SOX or internal audit forums, conferences, and working groups.
- Hire New Talent with Diverse Experiences. Recruit employees who have recently worked in external audit, regulatory roles, or industries facing significant transformation.
- Leverage External Resources: Engage external consultants or conduct peer reviews with other organizations in similar or complementary industries.
Final Thoughts
SOX compliance isn’t just a regulatory burden—it’s a competitive advantage when executed well. Companies that continuously improve their controls, challenge their assumptions, and seek fresh perspectives are far less likely to face financial restatements and reputational damage.
What’s Your Perspective? Are companies too complacent about SOX 404, unknowingly leaving the door open for costly failures? Or are there genuine reasons to feel confident? Let’s keep the conversation going. Share your thoughts in the DataSnipper Community, in the comments, or send me a direct message.
Ryan Godbey, CPA is a former KPMG US lead Audit Partner of over 20 years and technology-focused leader and problem solver with a track record of driving innovation in accounting and audit. Follow him on LinkedIn for more insights on governance and technology.
