Menlo Park, Calif, (Sept. 17, 2003) -- Forget about the "cascading effect." Privately held companies may be leaning toward voluntarily adopting their own rules for working with auditors similar to rules set in the Sarbanes-Oxley law that affect public companies.

In a survey of 1,356 chief financial officers at privately held companies, 38 percent agreed that privately held companies should implement "the same type of governance and control practices" required by Sarbanes-Oxley, while another 38 percent were undecided and just 24 percent disagreed. A separate survey of 1,400 private company chief financial officers found that 58 percent are already taking SOX-like measures, such as reviewing or altering accounting procedures, expanding their internal audit functions, and hiring outside consultants for internal audit work. Both surveys were conducted by staffing company Robert Half International Inc.

Should privately-held companies adopt SOX - like regulations on their own, it would undercut the widely-held theory that individual state legislatures, which set rules for private companies in their jurisdictions, would individually pass laws that emulate the federal act. The American Institute of CPAs, which dubbed that potential state activity "cascading" has been conducting a major anti-cascading effort that includes a Web site link, http://www.aicpa.org/statelegis/index.asp, which monitors cascade activity.

"The story now seems to be to forget about state legislatures and cascading because companies are doing this on their own," said Allan Koltin, president of practice management company Practice Development Institute in Chicago. He also noted that it makes sense for some private companies to adopt SOX measures "especially if they're planning to become public someday."

Paul McDonald, executive director of Robert Half Management Resources, agreed there are good reasons for private companies to act on their own. "Firms that are proactively improving their financial processes will have the ability to detect errors or fraud early on, enhance their credibility with key stakeholders and be in a better position to establish credit," he said.

--John M. Covaleski

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