Press Release

CFO Executive Board Releases Research Results; SOX 404 Legislation Triggering Delayed 10-K Filings and CFO Turnover

WASHINGTON--(BUSINESS WIRE)--March 18, 2005--The Washington, D.C. based CFO Executive Board, a division of the Corporate Executive Board (NASDAQ: EXBD), a leading provider of best-practice research and quantitative analysis, today announced their research reveals that Sarbanes Oxley Section 404 legislation is causing many more companies to miss deadlines for filing their financial reports; with nearly 300 companies indicating that they cannot file their 10-Ks with the SEC on time (versus only 70 last year). Additionally, the finding of a material weakness in a company's control structure is having a significant impact on CFO turnover, not on company share price.

Delayed 10-K Filings. CFO Executive Board preliminary analysis of 10-K filings with the Securities and Exchange Commission indicates that the number of companies failing to meet their March 16th filing deadline has dramatically increased, with nearly 300 companies indicating that they cannot file their 10-Ks on time (versus only 70 last year). Many companies have formally reported that they have been unable to complete their 10-K filings because of material weaknesses in their internal controls with many also informally sharing that they have missed the deadline because their external auditors failed to complete their Section 404 reviews.

Increased CFO Departures Despite Muted Market Reaction. In addition, while market reaction (as of March 10) to controls weakness disclosures made by companies with greater than $500M in revenues has been muted (less than a 3% decline relative to the S&P and most of decline concentrated in a few companies), CFOs haven't fared as well. According to ARC Morgan and CFO Executive Board research, more than half of CFOs at companies making such disclosures are changing jobs either right before or within a few months of the disclosure. Indeed, CFO search activity has nearly doubled this year at many executive search firms.

Drivers of Material Weakness Disclosures. As of March 16th, 11% of filers have reported a material weakness under provisions of the Sarbanes-Oxley Act, in excess of the 10% estimate made by PWC's CEO earlier this year. Early Roundtable analysis of 10-K filings reveal three principle drivers of material weakness disclosure:

    --  External auditors appear to be increasingly re-opening
        long-accepted accounting practice and forcing companies to
        re-interpret, often leading to material weakness disclosures.

    --  Over a decade of finance function cost-cutting appears to have
        come back to bite companies in the form of personnel-related
        controls weaknesses. Compounding the problem is the lack of
        availability of technically skilled finance talent, and
        emerging skill and compensation misalignments in finance

    --  Tax issues appear to particularly plague large companies. A
        review of remediation steps reveals that there appear to be
        historical fractures in tax documentation, lack of rigorous
        review, and a siloed functional structure causing controls

Implications for CFOs and Other Senior Executives. In light of these developments, CFOs and other senior executives face significant Sarbanes-Oxley-related risks in 2005:

    --  undermining compliance success by cutting compliance costs too

    --  key finance staff turnover in light of perceived career risk,

    --  an imbalance of power with their external auditors that is not
        only driving up compliance costs (finance executives predict
        these fees may reach 80% of 2004 levels), but also forcing
        changes in long-standard accounting treatment interpretations.

Immediate Action. CFOs and senior executives at all organizations immediately should:

    --  ensure they are not demanding from their Sarbanes-Oxley teams
        large cost reductions in 2005 that could compromise future
        compliance success.

    --  conduct conversations with all key finance staff to identify
        any risk of departure and implement retention strategies and
        fund staffing investments to reduce the risk of control
        failures, and

    --  build (or strengthen) an independent relationships with an
        additional public accounting firm to preserve future options
        to switch external auditors.

Additional Information. This work is the latest in the CFO Executive Board's research examining challenges that senior finance executives face in handling the increased regulatory burden of Sarbanes-Oxley. Detailed analysis of the types of material weaknesses being disclosed and by whom, are available at or by contacting the CFO Executive Board at

The CFO Executive Board's research is available exclusively to members.

    CONTACT: Corporate Executive Board
             Scott Bohannon, 202-777-5221

    SOURCE: Corporate Executive Board