Perspectives

January 2004

Practical Guide to Corporate Governance and Accounting: Implementing the Requirements of the Sarbanes-Oxley Act, 2004 Edition

By David E. Hardesty, CPA
Warren, Gorham & Lamont; approx. 1,500 pp.; $99.95; ISBN 0-7913-5131-9
Reviewed by Robert N. Waxman

This guide was written by a CPA for CPAs and others, and like a good set of workpapers, its organization and comprehensiveness are its greatest strengths—and in a way its greatest drawbacks.

The early chapters follow the order of the Titles in the Sarbanes-Oxley Act. Within each chapter, each section of the act is discussed in order, with the individual sections summarized, including the section’s effective date and, where appropriate, references to Congressional committee reports and PCAOB, SEC, and other releases. Depending on the section, the analysis includes recommendations on how to comply with the rules, and also identifies what parties will be affected by that section and in what ways, and action steps to take. All of this and the author’s highlighted observations are written in plain English.

The next 13 chapters present the author’s insights on such diverse topics as tax services under the Sarbanes-Oxley Act, the pressure to adopt better corporate governance by nonpublic companies, and the act’s impact on companies going public and on not-for-profit entities. These chapters also discuss audit committee requirements and the approval of nonaudit services, management’s responsibilities under the act, and section 302 and 906 certifications. Other important topics include board of directors and audit committee guidance, management guidance, internal control and information technology, state boards of accountancy, pension and retirement plans, public versus nonpublic companies, in-house attorneys, outside attorneys, client letters and interoffice memoranda, and checklists.

The “Client Letters and Interoffice Memoranda” chapter contains helpful sample memos that can be used by accountants, such as interoffice memos to the tax department of a public company client, and memos to the tax department of the firm auditing a public company. A checklist chapter includes the due diligence requirements of sections 302 and 906 certifications.

Next the book presents two matrixes, the first sorted by the section of the act, including cross-references, analysis of the rules and regulations, effective dates, affected parties, the effect, the action that must be taken, and suggested references. This matrix brings all of the moving parts of the Sarbanes-Oxley Act together with a high-level overview. The same information is then repeated in a second matrix, sorted by who is affected.

The very last part of the book consists of the full text of publicly available documents, including the Sarbanes-Oxley Act; SEC regulations, rules, and reports; PCAOB rules; and Department of Labor rules.

Some Minuses

Much of the analysis in the first part (12% of the guide) does not go deep enough, and contains unnecessary references and repetitions. The continued use of full references to the Code of Federal Regulations, when abbreviated references would do, is distracting. In my experience most accountants with public clients would prefer “Reg S-X Rule 1-02” to “17 CFR ¶ 210.1-02.”

An irritating but minor flaw are the “suggested references” to “background” materials that point the reader to another of the publisher’s books or subscription services. Readers who do not own these books or subscribe to these services may find these commercials distracting.

All of the material in the last part of the book (nearly 60%) is in the public domain and can be obtained from the websites of the SEC, PCAOB, and others. Short of browsing this entire part, the reader has no idea what topics these releases cover because they are neither captioned in the table of contents nor included in the index—a serious drawback. On the other hand, having them all in one place is not without its benefits (if only they were searchable).

Another drawback is that the index omits much of the detailed material in the text. Any book of this kind needs a strong index, and the forlorn appendage at the back of this volume is a serious weak point. In addition, certain referenced auditing standards have been superseded (e.g., SAS 41 by SAS 96).

Included in the first edition of this guide, but missing from this one, are the House and Senate Committee Reports, which I had found helpful in understanding the intent behind the Sarbanes-Oxley Act. However, this material can be found at the Congressional website (thomas.loc.gov).

Overall, this guide tackles a complex, moving target and much improves upon its predecessor, which was published shortly after the Sarbanes-Oxley Act was passed in 2002. Despite the book’s serious flaws, if you buy this second edition you will have in one volume a useful resource that I can nevertheless recommend.

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