As many Compliance Week readers know, our company—the $44 billion supermarket operator Royal Ahold, listed on the New York Stock Exchange—was accused in 2004 of filing materially false statements to the Securities and Exchange Commission. Since then, Ahold has succesfully completed its road to recovery, and improving our system of internal controls was crucial to doing so. As such, we believe we have a unique perspective on how best to accomplish the objectives of Sarbanes-Oxley. We’ve devised a new approach to SOX Section 404 management testing, and want to share our experience with fellow Compliance Week readers.
Contrary to what you might think while in the depths of an internal controls audit, it is possible to develop an approach to assess the effectiveness of controls that is both highly effective as well as efficient. The approach we developed at Ahold, which we call “embedded testing,” is founded in the most fundamental of internal control principles. External auditors should be able to place a high degree of reliance on embedded testing. Implementation of embedded testing itself can by reduce SOX 404 compliance costs by as much as 50 percent, while at the same time increasing the amount of competent evidence.
