Decision support: key for material-events reporting.

• Author: Downes, Ian
• Position: Disclosure

Section 409, a key provision of the Sarbanes-Oxley Act dealing with real-time disclosure of material events, is dividing companies into two distinct camps: the "haves" that historically valued real-time disclosure and the "have-nots," those that had not addressed the issue until the recent legislation. The haves, in theory and practice, are already equipped to meet the new disclosure standards. Conversely, the have-nots--an unfortunate majority of companies--are now scrambling for solutions.

Section 409 of Sarbanes-Oxley calls for the real-time disclosure of material changes that will impact the financial condition or operations of a corporation on a "rapid and current basis." This may include such issues as trend and qualitative information, and significant changes in sales volume or operations structure. The deadline for adoption is tentatively set for January 2005.

Interestingly, those companies that have invested in decision-support capabilities, even before Sarbanes-Oxley, are already meeting the requirements. (Decision support is the function that enhances business planning with detailed analytical information and is actively engaged in managing the business strategy for the long term.) For these companies, the difficulties associated with meeting the legislated requirements have already been absorbed, and the practices are routine. Not surprisingly, these same companies are also realizing the associated business benefits of the more efficient systems.

On the other side of the equation, the companies that are just getting started have a long road ahead, and are finding it difficult to adapt their business practices to comply with the new standards. Others simply lack the capability and internal systems to make instant disclosure to the marketplace, even as new requirements are mandating such practices.

Cap Gemini Ernst & Young has documented data to support this claim, based on anecdotal experiences of clients and a study it initiated in 2003 of more than 300 CFOs in a wide range of industries. In fact, fully three-quarters of the respondents cite better decision support as the basis for their business case for improving finance, and only about half cite a need for better regulatory compliance.

While this statistic may be somewhat surprising at first glance, the logic behind it is sound. Focusing only on Sarbanes-Oxley compliance is for short-term, quick fix-focused executives. In contrast, focusing on world-class decision support...