Section 404 of the Sarbanes-Oxley Act (SOX) is designed to nip accounting problems in the bud, before they can blossom into fraud, by focusing on internal controls. Many companies, in complying with Section 404, have discovered—to their surprise—that reviewing internal controls can in fact result in benefits beyond unmasking accounting problems. For example, Pitney Bowes used the internal audit review process to consolidate four accounts receivable offices into one, saving more than $500,000 in one year alone. Cisco Systems, Inc., which spent $50 million and 240,000 hours complying with SOX, found opportunities to streamline steps for ordering products and services, making it easier for customers to do business with Cisco.

Despite reports suggesting that individual companies benefited by eliminating non-value-added costs as a result of SOX Section 404, many CFOs believe the costs are not worth the benefits to their individual companies.

Discuss with your classmates the cost–benefit outcomes of Section 404 of the Sarbanes-Oxley Act. What types of societywide benefits are being overlooked by CFOs?

Would those societywide benefits ultimately provide benefits to each individual firm? How?