Sarbanes-Oxley (SOX) is still a hot topic on the minds of companies today. I read this interesting blog to keep up to date on the latest developments - Inside Sarbanes-Oxley. The focus that SOX is placing on certification of financial statements is definitely trickling down to the cash flow statement and working capital management.
Particularly, Section 404 which deals with having a strong set of internal controls. Since A/R, A/P and inventory are key drivers of cash flow, these are being seen as prime candidates for testing and process automation. Especially A/R and off balance sheet inventory liabilities.
Accounts Receivable is where the rubber meets the road in terms of realizing (not necessearily recognizing) revenue. Here is where the controls have to ensure that all the cash processes - credit scoring and risk management, collections, cash appliciation are being handled in a non-fraudulent manner. Lots of companies are putting in clear protocols and remediation processes around these functions. In fact, a firm wall is being placed between the people extending credit to the people actually handling the transactions to prevent any type of collusion or fraud.
There's a lot more to be said about SOX and cash flow, along with Off Balance Sheet Inventory Liabilities. As deadlines approach, companies are still scrambling to meet requirements...
I'll be posting about the COSO framework next, which helps encapsulate the solution to these challenges.
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