Running head: TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY

Trinity Industries SOX Compliance Journey

Elisabeth J. Page

Southern New Hampshire University

1. Overview

Trinity Industries employs over 21,000 people and has seen significant growth in

revenues, operating profit, and net profit in recent fiscal years. Industry: According to its

website, businesses owned by Trinity Industries operate by, providing products and services to

the energy, chemical, agriculture, transportation, and construction sectors (Trinity Industries,

Inc. 2017). Trinity Industries has upwards of five operating segments and, according to a SWOT

Analysis by MarketLine, in fiscal 2015, the rail group segment accounted for 50.6% of the total

revenues, followed by railcar leasing and management services group (17.1%), and energy

equipment group segment (13.8%) (Trinity Industries, Inc. SWOT Analysis. 2016). Although

Trinity Industries also trades in energy, barge, and construction products, its rail and railcar

leasing and management service group segments constitute the majority of its revenue stream.

According to an article from the Journal of Information Technology Teaching Cases,

Trinity Industries was born out of the 1958 merger between Trinity Steel and Dallas Tank, both

struggling propane tank companies located in Dallas (Shultze 2011). Since that time, the

company has become an industry giant with a robust organizational structure. The Chief

Executive Officer, Timothy Wallace, along with ten directors, oversees the operations of the

company, delegating the management of important business units to key employees like the

Chief Financial Officer (CFO) and the Chief Operations Officer (COO). They in turn delegate

responsibilities to employees who manage the operations of the sub-units and report back up the
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 2

ladder, and so on and so forth. Below is the organizational structure of Trinity Industries, Inc.:

Image retrieved from:http://www.theofficialboard.com/org-chart/trinity-industries

A comparison of the revenues, operating profits, and net profits of Trinity Industries and

three comparable organizations within the same SIC on the SEC website: 3743, or Railroad
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 3

Equipment, is as follows:

Summary of Revenues, Operating Profits, and Net Profits by

Company for the Fiscal Year Ended December 31, 2015
$7,000,000,000

$6,000,000,000

$5,000,000,000

$4,000,000,000

$3,000,000,000

$2,000,000,000

$1,000,000,000

$0
FY 2015 Revenues FY 2015 Operating Profit FY 2015 Net Profit

Trinity Industries Westinghouse Air Brake Technologies Corp

American Railcar Industries, Inc. FreightCar America, Inc.

Data retrieved from:

American Railcar Industries, Inc. (2016). Form 10-K. St. Charles, MO
FREIGHTCAR AMERICA, INC. (2016). Form 10-K. Chicago, IL
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION. (2016). Form 10-K. Wilmerding, PA

For the fiscal year ended 2015, Trinity Industries consistently reported nearly double the

revenues, operating profits, and net profits of its competitors.

In light of Trinity Industries efforts to become SOX compliant before the legislation was

passed, it is evident that management places a high premium on a strong control environment

and the integrity of its financial reporting. Trinity Industries current CEO, Timothy Wallace, has

been at the company since 1976 and has led the company to incredible growth in recent years.

Wallace became CEO in 1999 and has since made many changes to Trinitys organizational

culture. In stark contrast to his fathers management style, Wallace, talks effusively about

empowering Trinity employees (Borden 2000). Through a combination of progressive policies

and internal control initiatives in conjunction with Trinitys move to SOX compliance, Wallace

has fostered a strong control environment and nurturing organizational culture. Wallaces
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 4

alternative management style has yielded impressive results in the past; during his tenure in the

railcar division at Trinity, Wallace led his team to, [increase] revenues from $76 million to

$1.25 billion (Borden 2000). Unlike under his fathers leadership, employees feel comfortable

communicating information, bad or good, to management. From a reporting perspective, this

promotes transparency and reduces the risk that Trinity will become involved in an accounting

scandal.

2. First Year of SOX Compliance: Success

Prior to its first year of SOX compliance, Trinity Industries laid the foundation for a

successful transition. Trinity Industries commenced measures to become SOX compliant before

the passage of legislation requiring public companies to do so. This involved a complete

overhaul of its financial reporting system. One such update included consolidating its ledger

packages in one location: Oracle Financials. According to an article in the Journal of Information

Technology Teaching Cases, it was estimated that the Oracle project saved Trinity $.5 million

annually in SOX compliance expenses (Schultze 2011). Trinity Industries also successfully

outsourced their Accounting Success Center, or ASC, effectively standardizing all accounting

transactions by routing them through a third party. Implementing this change in conjunction with

updating Trinity Industries financial reporting system, was a considerable accomplishment

especially in light of the challenges Trinity had previously experienced with large-scale IT

projects and the deep-seated resistance organizational members harbored toward outsourcing

(Schultze 2011). Trinity continued its trend of planning ahead by setting an internal deadline to

have a complete set of managements assertions ready six months prior to the official deadline.

According to Schultze, this early deadline would give Trinity an opportunity to fix any key
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 5

weaknesses identified during the course of preliminary testing by the real deadline (Schultze

2011).

3. First Year of SOX Compliance: Internal Controls

Preventative and detective controls are extremely important to a strong financial

reporting process. Trinity Industries established a strong control environment from the inception

of its SOX initiative. A strong control environment is an effective tool for promoting ethical

financial reporting; conversely, a weak control environment creates many risks within the

financial reporting process. According to an article in the Journal of Accountancy, an inferior

control environment is, regarded as a strong indicator that a material weakness in internal

control exists (Ramos 2004). The PCAOB takes this principle one step further; according to

Auditing Standard 2201.02, if one or more material weaknesses exist, the company's internal

control over financial reporting cannot be considered effective (AS 2201 2017). The direct

correlation between poor control environment and material weakness in internal controls makes

Trinitys strong control environment a powerful preventative control. Trinity Industries also

adopted a process whereby the owners of internal controls are contacted on a quarterly basis and

asked to re-affirm their responsibility to monitor the controls assigned to them. According to

Ramos, in addition to reminding the owners of their commitment to maintain important financial

reporting safeguards, this process was effective at tracking changes in control ownership as it

regularly alerted Trinity if control ownership responsibilities had not been reassigned as people

left the company or changed jobs, for instance (Schultze 2011). The quarterly surveys function

as both a preventative and detective control.

Under the direction of the PCAOB, an auditor should, [focus] on entity-level controls

and [work] down to significant accounts and disclosures and their relevant assertions" (AS 2201
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 6

2017). This methodology provides assurance that any material weaknesses in internal control

over financial reporting will be addressed.

To call back to one of Trinity Industries successes, outsourcing the financial reporting

system to Oracle Financials and requiring an annual compliance audit of its data capturing

facility in India represented more important controls over financial reporting. Oracle Financials,

Trinity Industries third-party accounting services provider, provided centralized, outsourced

services for routine, organization-wide transaction processing such as billing, payroll, and AP

(Schultze 2011). Maintaining records on a consistent and centralized financial reporting platform

mitigates the risk of anomalies or otherwise prohibited activity going undetected; this makes the

centralized financial reporting system both a preventative and detective control as well.

4. First Year of SOX Compliance: Material Weaknesses

Before evaluating controls for the potential of material weaknesses, we must define what

a material weakness is and what determines its severity. The PCAOB defines a material

weakness as, a deficiency, or a combination of deficiencies, in internal control over financial

reporting, such that there is a reasonable possibility that a material misstatement of the

company's annual or interim financial statements will not be prevented or detected on a timely

basis (Auditing standard no. 5). The severity of a material weakness depends on the likelihood

of a resulting misstatement and how badly the misstatement would skew the financial reports. To

expound on this, Ramos wrote, a material weakness is a deficiency in which there is a

likelihood (more than remote) that a significant (material) financial statement misstatement will

not be prevented or detected on a timely basis (Ramos 2004). This expansion sets parameters

for what it means to be likely for a misstatement to occur and remain undetected. Trinity

Industries had no material weaknesses in their first SOX compliance audit.

TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 7

5. First Year of SOX Compliance: Specific

The railroad industry has seen slowly diminishing profits since the mid-1900s. In the age

of airplane and automobiles, travel by train is a fraction of what it once was. In addition to the

diminishing demand for consumer transportation, shipping giants like FedEx and UPS are often

more cost-effective options for small to mid-size corporations. Financial pressures in a strained

economy translate to influence, intentional or not, from the top to report favorable results. If the

control environment is weak, railroad and railroad equipment companies are susceptible to

pressure to meet certain financial performance measures. This is why it is critically important for

management to set a strong tone at the top to foster a solid control environment.

6. First Year of SOX Compliance: PCAOB

According to Ramos, two of the requirements for internal controls include, the

identification of the framework used to evaluate the internal controls (Ramos 2004) and a

statement as to whether the internal control system is effective as of yearend (Ramos 2004).

Trinity Industries adhered to these requirements from the very beginning of its SOX initiative,

implementing a number of initiatives to strengthen its internal controls and identify areas where

controls were lacking. Significant PCAOB standards affecting Trinity Industries included

Auditing Standards No. 2 and 3. According to an article from The Journal of Accounting and

Economics, while both PCAOB AS2 and AS3 were expected to enhance the quality of the

external audit, they also increased the amount of time required to complete the audit.

Consequently, many firms that routinely released preliminary earnings numbers after the

completion of audit fieldwork must now trade-off the market demand for timely information

against a possible reduction in reliability (Bronson 2011). According to the article, revisions to

preliminary announcements when filing the 10-K report would have been 35% lower during
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 8

2005 if the historical frequency of issuing earnings releases after the audit report date had not

changed (Bronson 2011). In light of the staggering data, firms that strive to both make the audit

report deadline and facilitate a thorough audit are rarely able to achieve both. Trinity Industries

became a leader in SOX 404 Compliance because of its proactive approach and strong control

environment.

7. First Year of SOX Compliance: Factors

Trinity Industries was successful in its first year of SOX compliance because of its early

commitment to the transition, strong control environment, and internal deadliness which allowed

for increased scrutiny of managements assertions:

The SOX compliance initiative began well in advance of its deadline. By adopting the

spirit of Sarbanes-Oxley early, Wallace was able to leverage Trinitys holistic culture and his

tried-and-true management style into a strong control environment. Timothy Wallace has

embodied integrity and transparency since his first day as Chief Executive Officer; his efforts to

become SOX compliant well before the official deadline have been largely successful due to the

guidance of key Trinity employees. By establishing a two-way relationship with his employees,

Wallace could take advantage of their expertise while setting an example for how executive
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 9

management should value its employees. All of these factors combined to facilitate the

successful transition to SOX compliance with no material weaknesses in year one.

8. Bottom-Up Approach: Strengths and Weaknesses

In highly competitive markets, companies are always seeking new ways to gain the

advantage over competitors. The bottom-up approach to risk mapping is an effective choice for

companies looking to identify and mitigate the risks associated with their unique business

processes. This methodology concentrates on recognizing specific business processes,

identifying the risks associated with them, and ranking them according to their significance. In

contrast to the top-down approach, which involves identifying the risks associated with the

organizations strategic initiatives and subsequently designing processes to mitigate those risks,

the bottom-up approach begins with, the census of the processes of the company (Zahra

2014). In addition to providing a detailed map of business processes and risks, data collected

through the bottom-up approach can be used to advance other management initiatives. For

example, the bottom-up approach may allow management to pinpoint processes that can be

redesigned for maximum efficiency.

9. Bottom-Up Approach: Recommend

It would have been in Trinity Industries best interest to keep its Accounting Service

Center (ASC) at its Trinity campus in Dallas, Texas instead of outsourcing those operations to

India. In spite of providing a 20% cost savings (Schultze 2011), moving the Accounting

Service Center would require, an annual compliance audit by a Trinity representative at the

outsourcer's facilities in India (Schultze 2011). On top of the added responsibility of

coordinating the annual audit in India, there are numerous security risks associated with sending

information technology processes abroad. Not only does Trinity Industries have an incentive to
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protect its own confidential information, but the company also has a duty to protect its

customers private information. Outsourcing its Accounting Service Center may be good for

operating results; however, consumer confidence in Trinity Industries would plummet if the

company found itself at the center of a data security scandal. Although Trinity Industries

managed to successfully export its Accounting Service Center in spite of a, deep-seated

resistance organizational members harbored toward outsourcing (Schultze 2011), there will

always be an elevated threat of cyber sabotage in connection with the location of this business

unit.

10. Bottom-Up Approach: Top-Down

The bottom-up and town-down methods are both valuable approaches to risk mapping

and it is recommended to, wherever possible, combine them according to the resources and

deadlines (Zahra 2014). Each approach has strengths and weaknesses that offset those of the

other. For example, the top-down approach is generally less costly to utilize than the bottom-up

approach and identifies the risks associated with the strategic initiatives of the business;

however, the bottom-up approach provides in-depth analysis of all major business processes and

can cover any blind spots that may result from adopting the top-down approach alone. This is

important because one of the main weaknesses of the top-down approach is identifying and

quantifying risk. While the bottom-up approach is more comprehensive, inappropriate

prioritization of the risks identified during this process can be destructive. In this way, the top-

down approach ensures that organization-wide goals are being met and prevents the silo effect.

11. Bottom-Up Approach: Compliance Project

While it is always more advantageous to adopt both the top-down and bottom-up

approaches when risk mapping, not all companies have the resources to implement both
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 11

methodologies. The skills and resources needed to remain compliant can be quite costly and,

according to an article in the Journal of Information Technology Teaching Cases, Trinity's

internal audit group consisted of only two people (Schultze 2011). Because of the limited

number of human resources in its internal audit department, it is important that Trinity adopt an

approach that is both cost effective and achievable in its first year of SOX compliance. Based on

the needs of the company and the timing of the transition, the top-down approach is a more

appropriate choice; it is generally less costly to utilize than the bottom-up approach and would

align the internal audit departments goals with Trinity Industries strategic initiatives.

12. Bottom-Up Approach: Internal Control Structure

Regardless of the approach adopted, it is important that it be tailored to reflect Trinity

Industries risk appetite. The top-down approach focuses on organization-wide strategic

initiatives, foregoing detailed knowledge of each business units major processes in order to put

the entitys best interests first. Trinity Industries internal control structure under this approach

should underscore a more conservative attitude toward risk since the top-down approach requires

no detailed analysis of each major business process. This will involve more control procedures in

addition to monitoring of controls as, according to an article in the Managerial Auditing Journal;

Bradford, a high degree of internal control activity and high degrees of monitoring lead to a

highly effective internal control system (Agbejule 2009). While most costly to implement,

adopting the bottom-up approach would give management greater insight into the risks

associated with each business process. Managers with this information are better equipped to

execute effective internal controls. If taking this approach, Trinity Industries should maintain a

high emphasis on internal controls; however, less emphasis may be placed on monitoring.
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13. Bottom-Up Approach: Chief Insights

For its first year of SOX compliance, Trinity Industries conducted pilot projects in two of

its business units: Highway safety and Tank-barge. Out of 83 and 67 key controls in place in

the Highway safety and Tank-barge business units, respectively, between 55-65% of internal

controls were preventative controls. Detective controls comprised 35-45% of key controls and

75-86% were manual controls. Systems controls made up 14-25% of key controls and between

13 and 19 controls gaps were discovered in each business unit. Of these control gaps, 9 and 15,

respectively, pertained to documentation. According to Schultze, to remediate the gaps

identified, the documentation teams worked with Corporate, the BU controllers and the Group

CFOs to gain agreement on each gap, its impact and mitigating control activities (Schultze

2011). Based on the data, it the majority of controls were preventative and detective. Most were

manual controls; therefore, there is opportunity to reduce the risk of human error and/or fraud by

introducing more automated controls to the internal control structure.

14. Bottom-Up Approach: Testing Processes

Trinity tested its internal controls by creating, a self-assessment process that assigned

and managed control owners for every control at perpetuity (Schultze 2011). This allowed

management to periodically re-affirm its assertion on the reliability of internal controls and

verify that they are effective. Trinity Industries was proactive in its transition to SOX 404

compliance; 6 months prior to the deadline the company was ready to provide the management

assertion on the integrity of its internal controls. This early deadline would give Trinity an

opportunity to fix any key weaknesses identified during the course of preliminary testing by the

real deadline (Schultze 2011).

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15. Bottom-Up Approach: Most Useful

The most useful testing technique employed by Trinity Industries was the routine

dispatch of control certification letters to its control owners. By making each control owner,

accountable for the effectiveness of the internal control assigned to him/her (Schultze 2011),

memo
Trinity Industries strengthened its control environment and created an incentive for its key

employees to be watch internal controls carefully.

16. Bottom-Up Approach: Results and Recommendations

Trinity Industries, Inc.

To: Timothy Wallace, CEO

From: Auditor
CC: Don Collum, VP and Chief Audit Executive
Date: 7/30/2017
Re: SOX Section 404 Compliance

Comments: It is a pleasure to inform you that no material weaknesses were discovered

during Trinity Industries first year of Section 404 compliance. Internal

controls have been reduced significantly and streamlined for maximum

efficiency. In addition to a slicker internal control structure, the transition

from fragmented data processing software to Oracle Financial now

provides additional synergies across departments. Moving forward, it is

advised that Trinity Industries depart from the project management

approach to adopt a holistic view of risk management. By embedding risk

management into the culture of the company, Trinity Industries can expect

to be a leader in SOX Section 404 compliance.

TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 14

17. SOX-Related Expenses: Further Reduce

Trinity could reduce the cost of SOX-related expenses by automating more controls; not

only would the company save on labor, but a reliable information system would strengthen the

internal controls at the same time. The prominence of IFRS may create challenges for Trinity

Industries in the near future. Implementation costs are notoriously high and that it was,

estimated that over 50% of IFRS conversion costs were related to IT (Schultze 2011) only

compounds the matter. Trinity Industries should take the same approach to adopting IFRS as it

took with the original SOX initiative; proceed under the assumption that the transition will be

successfully implemented well in advance of the official deadline.

18. SOX-Related Expenses: Major Sources of Cost

According to an article in the Journal of Information Technology Teaching Cases;

Basingstoke, in order to prepare Trinity for its second year of SOX compliance, the steering

committee focused on two initiatives: (i) a top-down, risk-management approach to testing, and

(ii) the streamlining of controls across BUs (Schultze 2011). Upgrading to an amalgamated set

of internal controls across its 22 business units must have been extraordinarily costly to Trinity.

19. SOX-Related Expenses: Rank

According to Auditing: A Journal of Practice & Theory, Section 404 costs can be

classified into three categories: additional audit fees, internal labor costs, and external

consulting/technology expenses (Krishnan 2008). Additional audit fees comprise roughly 25%

of Section 404 costs with external consulting/technology expenses coming in second. The most

expensive source of Section 404 costs is internal labor.

TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 15

20. SOX-Related Expenses: Software System

When it comes to electronic data processing (EDP) software, the competition is fierce.

Some products offer exceptional quality and reliability, while much of Oracles and its

competitors appeal derives from the ability to integrate seamlessly with other applications.

According to commentary from BusinessWeek, selling the best individual product no longer

matter[s]; integration and simplicity d[oes] (Kerstetter 2003). Oracles top two competitors

during Trinity Industries SOX compliance initiative were SAP and PeopleSoft; Oracle acquired

the latter in 2005.

PeopleSoft had experienced a severe down-turn in sales prior to being acquired by

Oracle. It appears that the software company failed because it lacked the software integrations

that other ERP giants were providing. According to The Journal of Computer Information

Systems, the driving force[s] behind the impending doom of first-- generation Electronic

Resource Planning programs are the Internet and the growth of e-commerce (Matthys 2000).

Unfortunately, PeopleSoft failed to effectively incorporate the internet and strategic partnerships

(e.g. cross-product integration) into its software and could not remain competitive in the age of

cloud computing.

At the time of Trinity Industries SOX compliance initiative, SAP would have been

Oracles biggest competitor. In 2000, SAP (Germany) [led] all other ERP vendors based on

revenue (Matthys 2000). SAP is a leader in the ERP software market; ironically, one drawback

of SAPs ERP software is related to its size. Evidently, a large vendor could actually mitigate

the benefits of ERP if the vendor is too large to adequately understand a mid-size company's

needs, budget, and culture (Matthys 2000). If SAP can improve its downward scalability it

may have a shot at gaining market share with smaller, growing companies.
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 16

21. SOX-Related Expenses: Defense

Purchasing Oracle to bring a unified space to Trinity Industries accounting processes

was a smart investment for the company. As the line between Accounting and Information

Technology continues to fade, brands offering integrations between risk management, financial

reporting, and other crucial business processes have become the top sellers of electronic data

processing software.

22. IFRS: Change

IFRS is widely expected to someday become an official world-wide set of accounting

standards. Even now, numerous countries adhere to this set of standards for financial reporting

and many more are preparing to make the switch to full IFRS. The United States appears to be

headed in this direction; as a result, both publicly and non-publicly traded companies must

consider the impact the change in accounting standards would have on their bottom line.

According to the Journal of Insurance Regulation, publicly held U.S. companies should assess

the implications of adopting the international standards in order to have a well-planned approach,

not only to changes in accounting, but also to potential changes in capital requirements and

perhaps product modifications (Lindberg 2010). IFRS, a principles-based approach to

accounting, could prove financially draining to implement for many publicly traded companies

following U.S. GAAP, a rules-based approach. For example, in most industries, the International

Financial Reporting Standards require more in-depth assessment than their U.S. GAAP

counterparts; more resources are required to fulfill the true nature of IFRS accounting. The

increased costs are not without offsetting benefits; with IFRS widely accepted across the world,

smaller public companies, as well as private businesses, can leverage adoption of IFRS to be

more competitive on the global market. According to the Journal of Insurance Regulation,
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 17

because the economy is increasingly becoming a global one, market forces might lead private

companies to adopt IFRS in order to remain competitive; raising capital in a foreign market or

even conducting transactions with an international company is likely to require a working

knowledge of IFRS, if not reporting under IFRS (Lindberg 2010). Whatever the implications of

converting to a different set of accounting standards, the message is clear; IFRS is the future and

businesses had better get on board.

23. IFRS: Improve

As the inevitable transition to IFRS draws closer, Trinity Industries should get a head

start on evaluating the impact the change in accounting principles will have on its internal

controls. While all internal controls should be evaluated, special attention should be paid to the

impact of IFRS on internal controls concerning IT; according to the ISACA Journal, moreover,

the implementation should be integrated with IT and internal controls in order to meet or exceed

regulatory requirements (Brown 2011). A deceptively large proportion of the costs of

transitioning to IFRS accounting will be attributable to information technology; an article in the

Journal of Information Technology Teaching Cases about conversion costs across companies

concluded that, the need for new data, as well as changes in calculations and reporting required

by IFRS, would ultimately have to be implemented in a company's information systems. For this

reason, some estimated that over 50% of IFRS conversion costs were related to IT (Schultze

2011).

24. IFRS: Standards

One result of moving to IFRS accounting is the impact of IAS 16 on Trinity Industries

accounting for the depreciation of its property, plant, and equipment. Unlike under U.S. GAAP,

fixed assets are broken down and depreciated by component when accounting under IFRS. A
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 18

potentially detrimental effect of adopting IFRS will result from the differences in lease

accounting under IFRS and US GAAP. According to an article in Journal of Global Business

Issues, due to the bright-line rules under U.S. GAAP some companies can use those rules to

their own benefits which can result in some assets not on either the lessee or the lessor's balance

sheet (Lin 2013). If Trinity Industries accounts for any of its leases under US GAAPs rigid

criteria, the company may see unfavorable changes to its bottom-line when transitioning to IFRS

accounting.

Fortunately, in light of the differences between US GAAP and IFRS, Trinity Industries

could be favorably impacted as well. According to a study published in Accounting Horizons,

the amount of reported net income is more than 5 percent higher under IFRS than under U.S.

GAAP for nearly 60 percent of the firms in the sample (Henry 2009). For example, under US

GAAP, four criteria must be met in order to recognize revenue as opposed to only two criteria

under IFRS.

Apart from the increased resources required to implement this change in accounting

principle, there are also far-reaching implications for IT. According to the Journal of Information

Technology Teaching Cases, the information systems at Trinity Industries, would therefore not

only need to accommodate new fields, but also new calculations, as well as new system and user

interfaces (Schultze 2011).

25. IFRS: Role

Governance, IT, and process buttress the goals of an organization when confronting a

compliance project like conversion to IFRS. As IFRS takes the lead as the preferred financial

reporting standard world-wide, there is a global call for businesses to embed the spirit of IFRS

into their governance, IT, and process infrastructures. The International Financial Reporting
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 19

Standards are principles-based and, as such, there are areas where more in-depth analysis of

accounting inputs is required under this method. Governance plays an important role in

facilitating the transition to a principles-based form of accounting; management should set the

tone at the top and encourage the embrace of a more holistic approach to reporting. According to

the International Journal of Accounting and Information Management, in addition to accounting

standards, global convergence of auditing standards and internal corporate governance is

imperative to facilitate the de facto IFRS convergence (Chen 2012). In other words, the

standards in place only matter if they are followed.

As IT and process are interrelated, the impact of IFRS accounting on these infrastructures

has broader implications. Many IFRS accounting principles require more detailed inputs to

accurately classify information; this means that while IFRS reporting has the potential to produce

more reliable information, if information is not recorded correctly at the lowest levels of the

business unit, there is a greater risk of material errors in the resulting outputs.
TRINITY INDUSTRIES SOX COMPLIANCE JOURNEY 20

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