Private or smaller publicly traded companies that proactively employ internal controls over financial reporting benefit from the following:
- lower capital costs
- higher company valuations
- increased interest by investors
- fewer roadblocks to transfer of ownership (if private)
- increased stock price (if traded publicly)
Formalizing or enhancing internal controls, like those expected of larger public companies, results in more reliable financial reporting and increases the credibility of management’s operations for bankers, investors, regulators, and other stakeholders.
Providing reliable financial information enables the company to produce financial statements with greater integrity and transparency. Internally, management can also make more effective decisions about the organization’s strategy, critical to maintaining a competitive advantage and potentially preparing for a public offering or a strategic transaction.
Process, Risk, and Control
Understanding and documenting the company’s transactional flows, leads to a clearer understanding of financial risk. This, in turn, enables management to focus on control design. Effective controls help management realize and focus on the highest-risk areas – to optimize its financial reporting, operations, and compliance.
Through this analysis, management can better identify, streamline, and potentially automate, processes that divert staff attention from critical activities. One additional benefit – by centralizing process and controls documentation, management can reduce audit-related expenses.
That said, obtaining and reporting the right financial information depends partly on how well management identifies and mitigates financial statement risks. This may seem complex and challenging. However, it becomes manageable with the right messaging, methodology, and discipline across the organization — regardless of the company’s size, complexity, or structure.
Consider Getting Outside Help When Setting Up Your Internal Controls
For private companies that often lack a dedicated compliance resource, we recommend enlisting the help of experienced SOX advisors who will work with you to outline a roadmap, mitigate disruptions, and bring expertise to streamline the process and train staff.
For questions or more information related to an internal audit, controls optimization, or SOX compliance, contact our team.
