Analyzes Management's Reports on Internal Controls
FLORHAM PARK, N.J., Nov. 17 /PRNewswire/ -- Financial Executives Research
Foundation (FERF), the research affiliate of Financial Executives
International (FEI), today released two new reports on Sarbanes-Oxley
compliance and Management's Reports on Internal Controls. These reports were
released in conjunction with FEI's Conference on Current Financial Reporting
Issues (CFRI).
"This research provides helpful insight into best practices for
Sarbanes-Oxley and we are excited to publish this," said Colleen Cunningham,
President and CEO of FEI and FERF. "With the bulk of Section 404
implementation in place at many companies, we believe this is an important
time to assess the progress made, and to look ahead at helpful business
lessons we can apply to the future. The report identifies best practices for
companies in 2006 and beyond."
Sarbanes-Oxley Section 404 Compliance - From Project to Sustainability
summarizes the compliance practices of leading companies and describes how
they are improving their processes in the second year of compliance as they
strive toward long-term sustainability. FERF produced this report with Dr.
Robert A. Howell, Distinguished Visiting Professor of Business Administration
at Dartmouth's Tuck School of Business.
The report is the result of Section 404 implementation leaders from some
of the nation's largest companies gathering to share their experiences with
Section 404. This discussion, arranged by FEI, found that most participants
agreed the time and expense of compliance was not sustainable, and that they
would have to look for and implement process improvements.
The report describes some of those process improvements, which include:
* Use a top-down approach to risk and planning;
* Take a risk-based approach to testing;
* Use software to automate documentation, controls, and testing; and
* Work towards a greater reliance on management's testing by the
external auditor.
Management's Report on Internal Controls
Also released today by FERF, Management's Reports on Internal Controls
analyzes these disclosures and related auditors' findings filed in Securities
and Exchange Commission Forms 10-K and 10-K/A to identify common formats and
inclusion of all required statements. A collaborative effort by FERF and Mark
P. Holtzman, Assistant Professor of Accounting at Seton Hall University, the
report found that:
* All used the framework developed by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO)
* Control evaluations and management's report on internal control over
financial reporting are typically located in Item 9a of the 10-K, with
some reports located in Item 8 or 15.
* All reports included the four basic requirements per the SEC Rule.
Virtually all followed the sequence of statements suggested in the
rule, which was to include statements regarding management's
responsibility, the framework used, management's assessment, and the
accounting firm attestation.
* The majority of companies had two audit reports from their accounting
firms, one for the financial statement audit and one for the internal
control. Most were found in Item 8 or 15 of the 10-K. Almost all of
the companies with a single audit report were audited by
PricewaterhouseCoopers.
* Considerable variation was found in management's reports that noted
their companies have effective internal controls over financial
reporting. Many reports reviewed and emphasized companies' strong
control systems, highlighting elements such as ethics committees and
anonymous hotlines.
* A number of companies took advantage of the SEC exclusion for control
assessments for new acquisitions.
* Material weaknesses related to income tax and lease accounting were
the types most frequently cited by companies that disclosed material
weaknesses.
As a public service, FERF has made Section 404 Compliance - From Project
to Sustainability available free of charge. Management's Reports on Internal
Controls is available to FEI members at no charge and is $49.95 for
non-members.
The reports can be found at: http://www.fei.org/rfbookstore
About FEI
Financial Executives International (FEI) is the leading advocate for the
views of corporate financial management. Its 15,000 members hold
policy-making positions as chief financial officers, treasurers and
controllers. FEI enhances member professional development through peer
networking, career management services, conferences, teleconferences and
publications. Members participate in the activities of 85 chapters, 74 in the
U.S., 11 in Canada.
Financial Executives Research Foundation (FERF) is the non-profit
501(c)(3) research affiliate of FEI. FERF researchers identify key financial
issues and develop impartial, timely research reports for FEI members and
non-members alike, in a variety of publication formats.
SOURCE Financial Executives Research Foundation
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Related links:
http://www.fei.org/rfbookstore
CONTACT:
Kristen Crofoot, +1-212-850-5692,
kcrofoot@fd-us.com, or Nicole Vasilescu, +1-212-850-5744,
nvasilescu@fd-us.com, both of Financial Dynamics for Financial
Executives Research Foundation
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