PacificSunwearof California, Inc.

Case Summary:

This case illustrates one company's efforts to comply with theSarbanes-OxleyAct of 2002 (SOX) and, in particular, Section 404 of the Act requiring elaborate tests and certifications of the effectiveness of the company's internal control system. In this case, the company's executives have concluded that the costs of this effort greatly exceeded the benefits to the company. They are endeavoring to cut their compliance costs and to redeploy their control and internal audit resources to other, more important tasks, such as enterprise risk management.

Case Questions:

1. Evaluate the process thatPacSunwent through to comply with SOX, and particularly SOX Section 404. Was that process as effective and efficient as it could have been?
2. PacSunexecutives seem convinced that the costs of complying with SOX were greater than the benefits to the company. Why didPacSunnot benefit from the compliance process to the same extent as some other companies? Or were their compliance costs just too high?