Insight - Vie to comply.

(From Financial Director)

Byline: Cath Everett.

Fortune-1000 companies are expecting to spend some $2.5bn on investigation and initial compliance with the Sarbanes-Oxley Act, and the total impact of the new law could be bigger than Y2K, according to AMR Research.

Section 302 of Sarbanes, which also affects non-US companies whose shares are listed on the NYSE or Nasdaq, required companies to ensure the independence of their board members and audit committees by autumn last year, while demanding that FDs and chief executives certify their financial results, making them personally liable for representing its performance accurately.

But AMR Research predicts that, in order to comply with the next phase of the act in the shape of Section 404 and 409, companies will need to spend a total of $2.5bn over the next 12 months on business process change, on revisions to their underlying IT systems and on amendments to methods of corporate governance. Section 404 covers the certification of financial reporting processes and controls, while Section 409 tackles the real-time reporting of material events.

Kirk Locke-Scobie, chief financial officer of Avaya UK, which provides communication networks and services, explains what he sees as being the impact of Section 404 in particular. "Section 302 was a statement about the spirit of the legislation, but 404 is much more about how to deliver it in terms of the new disclosure on controls. This means there is a lot more resource impact in 404, and we've put a lot of energy and resource into it."

As a result, the organisation has set up a project team to tackle the issue, which includes internal staff from both finance and the wider business, representatives from its internal audit group and personnel from SAP, Avaya's key applications provider. It has also hired KPMG (rather than engage its auditors, PricewaterhouseCoopers) to help in planning, gap analysis and execution.