As Sarbanes-Oxley Looms, Companies Rush To ComplyAs Sarbanes-Oxley Looms, Companies Rush To Comply

Companies are racing to meet a rigorous new mandate by federal regulators, requiring firms to scrutinize their operations and report back to investors.

But as a key trigger date passed Monday, many companies were struggling to meet the deadline for the regulations, part of the government's response to recent corporate accounting scandals.

``It's likely to be a sprint to the finish,'' Donald T. Nicolaisen, the chief accountant for the Securities and Exchange Commission, said in a speech last month, about companies' rush to meet the new rules.

The regulations, which stem from the Sarbanes-Oxley Act passed by Congress in 2002, require companies whose fiscal year ends Monday or thereafter to audit their ``internal controls.''

That includes everything from the way they disburse cash and track inventory, to supervision and security of their computer systems.

Once that audit is complete, top executives must testify to the results and report back to investors within 75 days after the close of the business year.

The result is a rolling deadline for companies over the next year. The firms with the least time are those who wrapped up their fiscal year on Monday, meaning they must report by Jan. 29. For the majority of firms, whose fiscal years end Dec. 31, the regulations will require them to report by March 16.

Only about 20 percent of 700 companies surveyed recently by accounting firm PricewaterhouseCoopers are on schedule to meet the deadline. About 70 of those companies have experienced problems and time will be tight if they are to meet the requirement.

About 10 percent are at a severe risk of missing the deadline, according to PWC, and if more companies run into problems that figure could grow to 20 percent.

``Companies have identified many more deficiencies than they originally anticipated and they've found some real control gaps,'' Dennis Nally, PWC's chairman and senior partner, said in a speech last week in New York. The SEC hasn't decided yet if it will give smaller firms an extension, agency spokesman John Heine said Monday. Those smaller companies are the most in danger of missing the deadline, said J. Edward Ketz, an associate professor of accounting at Pennsylvania State University.

``This whole process is an expensive one. It takes a lot of time, and it takes a lot of staff,'' he said. ``Large companies have probably been doing a lot of this stuff already and the small companies have probably not been doing all of this entirely and so for them it's a lot of work.''

In the end, Ketz said, it's doubtful whether all the time, money and effort will be well spent. The new regulations essentially ask companies' top management to look at the processes that ensure employees in their ranks will not engage in fraud. But most of the accounting scandals of the past few years resulted from misconduct in the top ranks of companies, by those with the power to override the very controls that are now being scrutinized, he said.