1. Thinking outside
the SOX box
Transforming your compliance function
for competitive advantage

2. What if?
What if you could:
• Reduce your SOX compliance costs? You can … by making a bold move and
• Be capable of quicker, more on-point changing how you think about and
decision-making across your entire execute your SOX function.
enterprise?
• Free up existing resources for
strategic initiatives?
3

3. Table of contents
Page 1 Executive summary: Significant opportunity exists
to transform your SOX function
Our survey reveals four actions companies can take now to empower their SOX
functions to create fundamental advantages in their sectors.
Page 2 1. Automating your controls
Replacing manual detect controls with embedded automated controls will make a
significant difference in the hours burned on SOX each year, resulting in an immediate
impact on your cost-containment efforts.
Page 4 2. Offshoring for lower-cost resources
The SOX function procedures are now well codified — it’s time to realize cost
efficiencies from globalizing your resources.
Page 6 3. Leveraging your IT investment
The benefits of going beyond simple automation and more comprehensively
leveraging all of your IT resources also applies to your SOX function.
Page 8 4. Innovating strategically
Strategic innovation around SOX execution can enhance your competitive advantage.
Page 13 Conclusion: Thinking differently about your SOX
function
SOX compliance is an opportunity to bring innovative approaches to help you drive
more value into your operations.
Page 14 Appendices:
• Background
• Industry breakdown

4. Executive summary
Significant opportunity exists to
transform your SOX function
In April 2011, Ernst & Young conducted a face-to-face survey A small proportion of the interviewees, however, have evolved their
with 225 global executives about their SOX compliance functions. thinking. Their companies have come to look at SOX the way they
For the most part, we found organizations are still treating SOX look at many of their operations: as an opportunity to innovate, to
compliance the same way most of them originally looked at it: as a automate and to gain competitive advantage. These are companies
compliance exercise. that have seen the correlation between certain SOX compliance
practices and the ability of the SOX function to add value to the
business — which 56% of the executives considered a key challenge
“Adding value to the business” identified for their SOX function.
as a key challenge of SOX functions Thinking outside the SOX box reveals four actions companies can
take now to empower their SOX functions to create fundamental
advantages in their sectors:
What are the key challenges faced by your SOX
function? 1. Automate controls
The majority of respondents consider adding value to their business a key 2. Offshore for lower-cost resources
challenge of the SOX function.
3. Leverage IT investment
4. Innovate strategically
Cost/Level of effort and
innovation in control 58%
testing strategies
The Who’s Who of this report
Adding value 56% The executives who took part in the survey were all in positions
to the business
that gave them a close-up view of SOX activities at their
Integration with companies — and they told us that the SOX function is definitely
other risk and 44% on the C-suite radar: 78% of the survey participants report to
compliance functions the CFO, CAE or the Controller.
Providing learning and
career opportunities 37%
for SOX personnel We aimed for broad-based representation across industries, with
21 sectors involved, ranging from aerospace and defense to
Technology- 32% telecommunications. The greatest number of respondents were
related challenges
in banking and capital markets and insurance, with 11% each of
the total participants, followed by technology (9%), and power
Controls monitoring 32% and utilities and consumer products (8%). See Appendices for full
industry breakdown.
Effectiveness 25%
While we talked with executives at companies ranging in size from
of resources less than US$1 billion in annual revenues to more than US$50
Dealing with mergers billion, the bulk of the participants (65%) were in the middle of the
or acquisitions of 16%
range, companies between US$1 billion and US$25 billion in size.
private or non-SOX-
compliant entities
Other 15%
1%
None of the above
0% 10% 20% 30% 40% 50% 60%
Multiple responses allowed
1

5. 1. Automating your controls
When we asked the survey executives about the number of controls • 35% of our participants indicate that they have more than 1,000
tested by their SOX function, we got a good picture of just how controls, more than 60% of which are key controls.
massive an undertaking SOX compliance is:
Then factor in that, for 62% of the companies, the testing of key
controls alone took at least five hours … per control. Add test of
design, walk-through and all the controls that aren’t designated as
Companies that reduce their total number key − which could be 20%–40% of the total number of controls − and
of controls tend to focus on key controls the time in the field to actually perform all the manual controls.
In short, SOX is a tremendous drain on resources that could be
deployed on other, more value-added tasks.
What is your company’s total number of
It’s a diverse drain on resources, as well: survey participants
SOX-related controls? revealed they were experiencing SOX deficiencies in more than 10
different areas of SOX testing, from derivatives to inventory, with
Total number of SOX-related controls 51% saying that IT general controls were giving them the most
The majority of respondents have fewer than 1,000 controls. problems (financial statement close process was the second-highest
area of deficiencies at 9%).
Less than 250 19%
Testing is the most time-consuming
250–499 24%
of the three key SOX activities
On average, how many hours do you spend on each
500–999 22% key control?
Design and walk-throughs versus testing controls
Between 22% • Most respondents spend less than five hours on design and walk-through
1,000–2,499
of each control.
• By comparison, the majority of respondents spend 5 hours or more on
2,500 or more 13% testing per control.
0% 10% 20% 30%
Design 80% 13% 6% 1%
What percentage of your controls are key controls?
Controls Percentage Walk-through 72% 25% 3%
Less than 250 79%
250–499 78%
500–999 72%
Testing 39% 39% 15% 8%
Between 1,000–2,499 66%
2,500 or more 62%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Key controls as a percentage of total controls
Less than 5 hours 5 to 10 hours
Average key control percentages are provided for the corresponding 11 to 20 hours over 20 hours
categories on left. The fewer total controls, the higher the percentage of
focus on key controls. Companies that reduce their total number of controls
Percentages may not total 100 due to rounding.
tend to focus on key controls.
2

6. Budget/Spend for SOX compliance Few key controls fully automated
What is the company’s annual budget/spend for What is the percentage of fully automated controls
SOX compliance? (vs. manual or IT-dependent controls) that make up
your total key controls?
Less than
$0.5 million
18% Fully automated key controls
• Most respondents say that less than 25% of their key controls are fully
automated.
$0.5–$0.9 million 18%
And yet, only 3% of the executives have fully automated more than half
of their key controls — and 78% have fully automated less than a quarter
$1–$1.9 million 27% of their key controls.
$2–$2.9 million 15%
No key controls
1%
are fully automated
$3–$4.9 million 8%
Less than 10% of key
controls are 36%
fully automated
$5 million
14% 10% to 25% of key
or more
controls are 41%
0% 5% 10% 15% 20% 25% 30%
fully automated
26% to 50% of key
controls are 19%
Average Median fully automated
US$2,766,742 US$1,200,000 51% to 75% of key
controls are 3%
fully automated
You can easily see why 39% of participants consider cost More than 75% of key
to be one of their key challenges. The SOX spend data confirms controls are 0%
fully automated
that this can be a major budget item:
0% 10% 20% 30% 40% 50%
• 37% spend at least US$2 million annually.
• 14% spend at least US$5 million.
Takeaway
There is widespread recognition that automation frees up Increasing use of automated controls can reduce your
resources to be put to better use elsewhere. By increasing costs in other ways too. We saw 55% of survey participants
your use of preventative automated controls and “turning indicate that their external auditors relied on 51% or more
on” key switches in IT systems, you can drive down the of the walk-throughs and testing work performed in-house.
number of manual touch points and labor-intensive detect So, if you automate controls and do SOX right, you may also
controls. Similarly, using automated tools in the SOX be able to increase reliance by your auditor. This may help
controls-testing process will have an immediate impact on reduce the time spent by your SOX-function employees
SOX costs. handling the inquiries and testing by the external auditors.
3

7. 2. Offshoring for lower-cost resources
Cosourcing is already being used extensively in the SOX arena: 50% • 81% of our survey executives said that Internal Audit was
of survey participants said that they used outside service providers involved with their SOX program.
for some part of their SOX-compliance work, with 66% using outside
• 40% indicated that their Internal Audit department devoted at
resources for testing. And yet:
least a quarter of its budget or more to SOX activities.
The majority of respondents use outside providers — most often for testing
Do you use an outside service provider for If yes, how do you use them?
SOX activities?
Outside service provider usage
Outside service provider used for SOX activities Testing is the key activity performed by outside service providers.
Just over half the respondents have an outside provider for one or more
SOX activities.
Testing 74%
Scoping/ 18%
risk assessment
No Yes PMO 7%
48% 52%
All of the above 16%
Other 14%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Multiple responses allowed.
4

8. Most IA departments are involved in the SOX program
Is Internal Audit involved in the SOX program? If IA is used in the SOX program, what percent of IA
budget/capacity is spent on SOX testing?
Internal Audit involvement in SOX program
For the majority of respondents, the Internal Audit department is involved Internal Audit resources on SOX testing
with the SOX program. Most respondents whose Internal Audit department is involved in the SOX
program say that less than 25% of its budget and capacity is spent on SOX.
testing.
Less than 25% 59%
No
19%
26%–50% 29%
51%–75% 10%
Yes
81%
Over 75% 1%
Don't know/
1%
unsure
0% 10% 20% 30% 40% 50% 60% 70%
The outsourcing of activities that aren’t fundamental to meeting
SOX work performance breakdown strategic business objectives has been a leading business practice
for many years now. There is no question that it reduces costs and
What percentage of SOX work is performed by the allows in-house resources to be applied to more strategic, core-
business matters. The off-shoring of such less-strategic operations
following:
not only helps companies reduce costs, but it also allows them to
practice “follow the sun” operations, which provide another means
Total 100% for increasing the productivity of in-house and (or) domestically
Resources at corporate headquarters 60% located resources. Yet only 3% of our survey participants were using
offshore resources for their SOX function.
Regional resources at other company locations 26%
Domestic third-party resources 9%
Takeaway
Other 2%
The basic procedures involved in the SOX function have
Offshore third-party resources 2%
been in practice for several years and are fairly well
Offshore resources not at company locations 1%
codified. Now is the time to realize the cost efficiencies
that can be derived from globalizing your resources.
5

9. 3. Leveraging your IT investment
Let’s be clear: leveraging your IT investment goes far beyond
turning on various automated controls in the systems and
automating testing. There is a real opportunity to use technology Ernst & Young
more strategically. Yet, we found only small percentages using more
innovative technology-based techniques: Controls Review Tool
• Only 21% employ data analytics regularly. Ernst & Young’s proprietary Controls
• 88% never use predictive modeling. Review Tool (CRT) enables our teams
• 65% do not use continuous controls monitoring. to quickly assess their clients’ current
We found that 90% of survey participants still use Excel® controls strategy and assist in the
for their scoping exercise, when there are other third-party identification of potential opportunities
tools that can slice and dice risks and controls in order to
optimize scoping. for improving the strategy for testing
controls and improving controls-related
documentation.
Testing process: data analytics or
The CRT presents internal controls
predictive modeling?
data in a user-friendly format, including
How often do you use the following as part of your
a summary of control statistics, a
testing process? detailed breakdown of controls by
processes and related applications,
Tools used in the testing process
and different views of the relationships
Most respondents either never or sometimes use advanced analytical
techniques as part of their control testing process. between controls and risks. The CRT
Among those who use them often or always, data analytics is the most can also help provide visibility into
popular technique. opportunities for rationalizing or
optimizing controls, including better
leveraging of automated controls.
Data 37% 42% 15% 6%
analytics
Automated
testing 39% 44% 14% 3%
methods
1%
Predictive
88% 9% 2%
modeling
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Never Sometimes Often Always
6

10. Continuous controls monitoring Excel® favored for scoping exercises
not widely used
What tools/software do you use as part of your
For what percent of SOX controls do you perform scoping exercise?
continuous controls monitoring (e.g., leveraging
Blackline to monitor account reconciliations)?
Continuous controls monitoring Excel® 90%
• Almost all respondents say that they either do not perform continuous
controls monitoring at all, or do so for less than 25% of all SOX controls.
Third-party
19%
vendor/software
Do not perform
continuous 65%
controls In-house –
monitoring developed tool/ 14%
software
Less than 25% 28%
None 4%
26%–50% 3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
51%–75% 1% Multiple responses allowed.
More than 75% 2%
0% 10% 20% 30% 40% 50% 60% 70%
Percentages may not total 100 due to rounding.
Takeaway
Strategic use of your IT investment is a critical driver
of competitive advantage. Our survey results suggest
that this holds true for applying it to your SOX functions
as well.
7

11. 4. Innovating strategically
Our survey explored the opportunities for applying innovative Specific innovative practices we asked about included:
practices to the SOX function and found this to be a relatively
• Use of control self-assessment (58% do not use at all)
untapped option.
• Peer reviews (63% do not use at all)
For instance, when asked when the last time a controls
rationalization/optimization or other innovative exercise had • Incorporating the SOX function into ERM program (48% do not)
been conducted − only 52% of respondents said it had been
• Creating more entity-level controls (94% had fewer than a quarter
during the current fiscal year.
of their key controls as entity-level controls)
Incorporating the SOX function into Few key controls are entity-level controls
Enterprise Risk Management
What is the percentage of entity-level controls that
Is SOX incorporated into your Enterprise Risk make up your total key controls?
Management (ERM) program?
Entity-level controls as percentage of total
Relationship between SOX and ERM key controls
Almost half of respondents do not incorporate SOX into their ERM
programs.
Less than 10% of
key controls are 54%
entity-level controls
10%–25% of key
controls are 40%
entity-level controls
26%–50% of key
controls are entity- 5%
No Yes level controls
48% 52%
51%–75% of key
controls are entity- 1%
level controls
More than 75% of key
controls are entity 1%
level controls
0% 10% 20% 30% 40% 50% 60%
Percentages may not total 100 due to rounding.
The use of entity-level controls is a particularly under-utilized
opportunity. Since one really effective entity-level monitoring
control may eliminate the need to do many transaction-level
controls, companies can significantly reduce the testing workload
by properly designing robust and effective entity level controls.
8

12. Rationalization/optimization exercises have been performed
When was the last time a rationalization/optimization If a rationalization/optimization or other
or some other innovative exercise was conducted? innovative exercise was conducted, what
techniques were used?
Innovative exercises
Only 52% performed rationalization/ optimization or other innovative Key techniques
exercises this fiscal year. Most respondents utilized rationalization of in-scope controls.
Current 52% Rationalization of 91%
s a year in-scope controls
Increased reliance
on higher-level
quarterly/monthly
55%
ast s a year 19% controls and less
on transactional
controls
Automation/
Two or more Optimization of 42%
24% SOX controls
years ago
Global
standardization of
control set (if 41%
Not performed 4% multiple countries/
locations)
Use of technology 22%
0% 10% 20% 30% 40% 50% 60%
for testing
Percentages may not total 100 due to rounding.
Implementation of
continuous controls 20%
monitoring
Other 7%
None of the above 2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Multiple responses allowed.
9

13. Control self-assessment not widely used Peer reviews not widely used
For what percent of controls does the company use For what percent of controls does the company use
control self-assessment (CSA)? peer reviews?
CSA Peer reviews
• The majority of respondents do not use CSA. • The majority of respondents do not use peer reviews.
Do not use Do not use 63%
control 58% peer reviews
self-assessment
17% Less than 25% 16%
Less than 25%
26%–50% 5% 26%–50% 4%
3% 51%–75% 4%
51%–75%
More than 75% 12%
More than 75% 16%
0% 10% 20% 30% 40% 50% 60% 70% 0% 10% 20% 30% 40% 50% 60% 70%
Percentages may not total 100 due to rounding. Percentages may not total 100 due to rounding.
10

14. There appears to be good reason to explore such innovative The leveraging of SOX information and testing with other
practices: they help deliver additional value for the business. departments that could put it to valuable use was also fairly
For instance, of those survey participants who had incorporated minimal:
their SOX function into their ERM program, 79% were satisfied or
• Only 9% of participants indicate they “significantly” leverage
extremely satisfied with the ability of their SOX function to add
their SOX testing results with their regulatory and compliance
value, while only 54% of those who hadn’t folded SOX into ERM
functions.
programs were similarly satisfied. Similar results were noted when
we asked about continuous controls monitoring. • Only 3% of participants do the same with their legal department.
Leveraging SOX information and testing across other functions/
departments within a company will decrease the burden felt by the
SOX incorporated into ERM program and business units. Another point here is that there are opportunities to
get a leg up on the competition by building the SOX function into
satisfaction with value the regular ebb and flow of business operations — by using self
assessments or peer reviews. Once you change the mindset at
Is SOX incorporated into your ERM program? the business-unit level, the SOX function can move beyond
compliance and into helping manage and monitor the business
How satisfied are you with the ability of your SOX on a continuous basis.
function to add value?
Internal Audit most often leverages
SOX testing results
How much do you leverage your SOX testing results
with other departments in the company or other
No 45% 43% 11%
compliance/reporting functions?
o
Leveraging SOX testing results
o
Respondents leverage SOX testing results most with the Internal Audit
department.
e
Yes
o o
21% 65% 14%
IA 7% 13% 26% 54%
0% 20% 40% 60% 80% 100%
ess s s e s e e e s s e
Regulatory/ 33% 39% 19% 9%
Percentages may not total 100 due to rounding. Compliance
There are also opportunities to get ahead of the competition by
exploring and developing innovative ways to generate more usable Legal 51% 35% 11% 3%
SOX information and (or) put SOX testing/data to more diversified
use. When we asked about the frequency of controls testing, we
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
found only 4% test continuously through the year. This is roughly
the same percentage that has fully automated most controls Not at all Very little Moderately
(which is probably required to make it economically feasible to do
continuous testing).
11

15. Does this lack of innovation matter? Our survey participants seem
Frequency of testing and roll-forward to think so. The participants whose companies refrain from using
the most progressive testing and scoping practices are less satisfied
approach with the ability of their SOX function to add value.
What is the frequency of your testing and your roll-
forward approach? Use of continuous controls monitoring,
Key techniques CSA and peer reviews coincides with
Frequency results for testing and rollforward are fairly evenly distributed fewer respondents being less than
over the year among the respondents.
satisfied with value of SOX function
A greater percentage of respondents who were “less
Controls tested
continuously throughout 4% than satisfied” with the ability of their SOX function
the year
to add value do not use the most progressive or
Majority of controls tested in innovative practices:
Q1 or Q2 and then roll-forward 23%
procedures/testing
re-performed in Q4
Majority of controls tested in
25%
Q1 or Q2 and limited 25% CSA
roll-forward procedures 37%
performed in Q4
Majority of controls tested later
in the year (late Q3/Q4), 29%
no rollforward performed 22%
Peer review
38%
Controls testing spread 20%
evenly throughout the year
0% 10% 20% 30% 40%
Continuous 19%
control
Percentages may not total 100 due to rounding. 39%
monitoring
0% 5% 10% 15% 20% 25% 30% 35% 40%
Use technique Do not use technique
Takeaway
In the global economy of the 21st century, innovation
often plays a vital role in differentiating a company and
bringing it to a position of industry leadership. Strategic
innovation around SOX execution can lead to better
strategic use of your existing resources.
12

16. Conclusion
Thinking differently
about your SOX function
Thinking outside the SOX box shows that SOX compliance is an opportunity to
bring innovative approaches to a subject area that has become somewhat stale and
routine. Innovative practices and approaches improve the chances that a company
will build more value into its operations, including:
• Reductions in spend from a substantial line-item cost
• More strategic allocations of financial-control resources
• Greater consistency and efficiency of controls across locations through
automation
• Reduced stress and burden on in-house resources through a powerful
combination of automation, outsourcing, and leveraging SOX work across the
company
• Using automated techniques (e.g., data analytics) — Expanded and more
comprehensive risk coverage without increasing the budget
When this shift in perspective occurs, there is ample opportunity to bring strategic
innovation to the seemingly mundane SOX issues of scoping processes and testing
strategies and execution. There are sophisticated tools to explore. Different
approaches to acquiring and analyzing data can make the data more valuable,
not only for compliance tasks, but for other previously unexplored purposes.
13

17. Appendices:
Background
Company revenues Internal Audit department and Internal
Control department both own the SOX
Annual revenue:
administration and testing
Annual revenue categories and responses
The majority of the respondents fall into the category of US$1 billion to Who owns administration and testing components of
US$25 billion in terms of their annual revenues. the SOX compliance function?
Ownership of the SOX compliance function
The Internal Audit department and the Internal Controls department are the
Less than 7%
$1 billion main divisions controlling the administration and testing components of SOX
compliance for the current respondents.
$1–$10 billion 42%
Internal Audit 34%
department 56%
SOX/Internal
$11–$25 billion 23% 52%
Controls 29%
department
Finance and 14%
accounting 10%
$26–$50 billion 13%
Business/Process 6%
owners 17%
More than 14%
External service 2%
$50 billion provider 14%
Compliance/Risk 4%
0% 10% 20% 30% 40% 50% management 5%
2%
Percentages may not total 100 due to rounding. Other 4%
0% 10% 20% 30% 40% 50% 60%
Administration Testing
Multiple responses allowed.
14

18. Industry breakdown
SOX compliance function reports most Response by industry
often to the CFO
Industry categories
To whom does the SOX compliance function report? The two industries with the maximum number of completed surveys were
Banking and Capital Markets and Insurance.
Reporting relationship of the SOX
compliance function
Insurance 11%
Most respondents report to either the CFO, CAE or the Controller.
Banking and
capital markets 11%
Technology 9%
Consumer products 8%
Power and utilities 8%
CFO 45%
Oil and gas 7%
Automotive 7%
Life sciences 7%
CAE 20%
iversi ed industrial
products 6%
Media and entertainment 6%
Retail and wholesale 6%
Controller 13%
Telecommunications 5%
Aerospace and defense 2%
Asset management 2%
2%
Legal counsel
Chemicals 2%
Mining and metals 2%
Real Estate 2%
2%
Chief ris of cer 2%
Transportation
Provider care 1%
Chief compliance Airlines 1%
2%
of cer Pro essional rms
and services 1%
Government and 0%
public sector
SOX steering t r r t 0%
committee 2%
Private equity 0%
0% 5% 10% 15%
15%
Other
0% 10% 20% 30% 40% 50%
Percentages may not total 100 due to rounding.
15

19. Contacts
Is your SOX function geared for this transformation? Ernst & Young can help
you explore this opportunity.
Robert F. Cullen III Sapna Ahuja
Partner, Advisory Services Senior Manager, Advisory Services
+1 612 343 1000 +1 212 773 5928
robert.cullen@ey.com sapna.ahuja@ey.com
For a copy of the complete SOX survey, please contact the above or your Ernst & Young
engagement team.
For related thought leadership
from Ernst & Young, please visit:
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© 2011 EYGM Limited
All Rights Reserved.
EYG No. BT0117
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