Seminar in Accounting & Society SOX – Section 404 April 23, 2008

2 Seminar in Accounting & Society SOX Section 404 – April 23, 2008 Rick Andrews Partner KPMG Dana Plonka Director, Internal Audit Sigma-Aldrich Corp.

3 Agenda Introductions/Background Overview – What is Sarbanes-Oxley? -SOX 302 & 404 -Management’s Certifications Impact of SOX – An Internal Perspective Costs & Benefits of SOX Impact of AS5 Questions

4 About Sigma-Aldrich $2B global Life Science Company Publicly traded on NADAQ as SIAL Develops, purchases, produces & sells biochemical and organic chemical products for use in scientific research, biotechnology, pharmaceutical development, the diagnosis of disease, and as key components in pharmaceutical and other technology manufacturing 7,900 employees in 36 countries Over 130,000 products 64% of Sales outside the US

5 About KPMG KPMG LLP is a provider of audit, tax and advisory services KPMG LLP is #1 in the St. Louis market auditing 42% of St. Louis’ Top 50 Public Companies KPMG LLP is the U.S. member firm of the KPMG international network with a presence in ~ 150 countries KPMG has been recognized as a great place to work by Fortune, Working Mother, the Human Rights Campaign, Business Week, The Women’s Alliance, the Black Collegian, DiversityInc and others KPMG LLP consists of 22,000 partners and staff across the U.S. The St. Louis office is supported by approximately 250 employees serving in the capacity of client support delivery or client service support functions

6 What is Sarbanes-Oxley? What is SOX 302? What is SOX 404? What is AS5?

7 SOX 302 at Sigma-Aldrich Quarterly disclosure controls and procedures implemented in 2002 Robust certification process includes 130 managers worldwide Extensive questionnaire addresses multiple areas and implies personal responsibility Disclosure Committee reviews all responses to determine actions Certifying Officers (CEO & CFO) and external auditors receive unedited, complete reports

8 SOX 404 at Sigma-Aldrich Implemented web-based software to manage internal control documentation, assessments and testing in 2003 Control documentation required for all Sigma-Aldrich sites; updated annually by Business Process Owners at sites SOX 404 testing performed by Internal Audit on behalf of management Deficiencies reported to sites, management, KPMG, Audit Committee

9 Management’s Certifications The CEO and CFO must personally certify to the: Accuracy of financial statements Adequacy & effectiveness of disclosure controls and procedures Adequacy & effectiveness of internal controls over financial reporting Completeness of all disclosures that materially impact the financial statements or relate to frauds involving management with a significant role in internal controls over financial reporting

10 SOX at Sigma-Aldrich SOX 404 & 302 had a significant impact on: -Board of Directors’ responsibilities -Management’s responsibilities -Internal Audit Department resources and responsibilities -Costs of compliance

11 Impact on Board of Directors Increased liability & responsibility for Audit Committee members Qualifications for Audit Committee members more stringent (“financial expert” requirement) Director, Internal Audit reports directly to the Chairman of the Audit Committee Whistleblower Policy implemented with reports to the Audit Committee Chair

12 Impact on Board of Directors As a result, the Audit Committee has: Increased focus on internal controls & audit results Demanded swift remediation of internal control weaknesses Supported the addition of Internal Audit resources to support compliance efforts Initiated discussion over business risk management strategies across the organization

13 Impact on Management Certifying officers (CEO & CFO) are personally liable for undisclosed issues and significant financial misstatements  Potential for large $$ penalties and prison sentences Increased accountability to Board with respect to maintaining internal controls and SOX compliance processes

14 Impact on Management As a result, Management has: Increased focus on internal controls & audit results Demanded swift remediation of internal control weaknesses Placed reliance on transparency of quarterly disclosure certification process Continued to set a strong “Tone at the Top” with respect to establishment and adherence to policies & controls

15 Impact on Internal Audit General: SOX compliance role & responsibilities  Vary by Company  May drive strategy &/or perform SOX 404 testing  May perform evaluation of quarterly disclosure controls & procedures Balance of work shifted to routine detail tests Stature of audit profession raised Bubble of demand for auditors Increased salaries

16 Impact on Internal Audit At Sigma-Aldrich: Significant resource drain in Years 1 & 2 of compliance Risk of turnover due to “less challenging” compliance work Department expanded by 33% to support SOX compliance Increased leverage for control weakness remediation Increased level of control documentation to support our work

17 Sigma-Aldrich SOX Timeline 2003 SOX 404 Compliance Startup th year of compliance IA time remains at 25% th year of compliance AS5 released 25% of IA time 2006 Re-engineered our approach Reduced # of controls tested by 45% 40% of IA time nd year of compliance 70% of IA time st year of compliance Addition of 2 Sr. Auditors 90% of IA time 2002 SOX 302 Certification Process

18 Cost of SOX 404 Dollars: Costs of compliance $1M - $1.2M annually for Years 1 & 2 60% of cost related to internal resources After reengineering and AS5, reduced annual cost to $650K and 30% internal resource cost Other Costs: Internal resources diverted from more value-added activities After reengineering, able to strike balance with resources

19 Benefits of SOX 404 & 302 Increased knowledge of internal controls throughout the organization Ownership of internal controls embedded within the organization More rapid remediation of significant control deficiencies Increased transparency over events that may impact the financial statements and disclosures (SOX 302)

20 Impact of AS5 General, from Management’s perspective: External audit no longer opines on management’s approach to forming their opinion on internal controls over financial reporting Scales are balancing with more focus on a risk-based approach Management has increased flexibility in developing its compliance plan

21 Impact of AS5 At Sigma-Aldrich: Significant resource reductions achieved via reengineering project undertaken in 2006 in anticipation of AS5 Internal Audit efforts rebalanced with only 25% of resources devoted to SOX compliance vs. 70% in Year One

22 Agenda Introductions/Background Overview – What is Sarbanes-Oxley? Impact of SOX – An Internal Perspective Costs & Benefits of SOX Impact of AS5 Questions

23 Questions???