In Protiviti’s latest survey of the state of play with SOX, over half of the largest public companies reported their SOX related external audit costs rose again in 2017.

Why is this?

They put it down to a number of reasons, from new accounting standards, to external auditors investing in the latest technology.

In theory, a rise in SOX cost sounds negative but lets take a deeper dive into why that may not be the case.

Digital Transformation has left no business undisrupted, regardless of where you are on the maturity curve. This is bound to fundamentally affect and change processes, risks and controls in the emerging environment.

This is not just in relation to new processes and systems, but fundamental ERP evolution (SAP’s S/4HANA, for example), legacy systems being incrementally updated and improved and, of course, the wave of RPA enabled tasks in key processes. There is a lot of change going on!

Not just within our businesses, but externally too – change remains the only constant and recent years have seen a stunning amount of change in society, consumer behaviour, brand loyalty, business models et al. Our supply chains matter more than ever, in response to the growing scrutiny of the “how” as well as the “what” we achieve in business. It’s no longer enough to just produce results, stakeholders and shareholders are flexing their ethical muscles too – business values extend beyond just the internal teams of employees.

All of this means that our approach to governance, risk, controls and compliance has to change too. And this will affect Internal Controls over Financial Reporting (ICFR), the foundation stone of SOX and other generally accepted governance principles, as well as other elements of business strategy. Enterprise Risk Management (ERM) is flourishing in the wake of transformation.

This “Hype Cycle”from Gartner, always brings a wry smile. It is painful but true.

In the aftermath of SOX, it was more an inflated fear and paranoia rather than ‘inflated expectations’, but you get the point.  Over 15 years have passed, and we have slipped into the trough of disillusionment and hopefully are climbing the slope of enlightenment. Whilst we strive for the plateau of productivity, the catalysts of transformation and technological innovation are building their own new peals of expectation for us to both realize and manage.

Increased costs of SOX makes for a great headline, but is it all as bad as it seems? What does this headline actually tell us? SOX cost is not an isolated KPI to be managed. If your business is experiencing any change or transformation, you should be experiencing change in this area too. If there is no change or transformation, perhaps you should worry more!

The cost of SOX increasing as a standalone fact is not an inherently bad thing, nor an inherently good thing, it doesn’t actually tell us anything. It is just another measure that, in isolation, isn’t nuanced enough to really help us.

Context is king. Costs are both operating expense and investments for the future. Where are you focusing yours?

As always we welcome your thoughts, comments and criticisms…