Compliance Week: 63 Internal Control Discloses In October; SEC May Delay Sarbanes-Oxley Section 404 For Small Companies; More

Business Wire, Nov 9, 2004

BOSTON -- According to Compliance Week's monthly analysis of public filings, 63 companies disclosed material weaknesses or significant deficiencies in internal controls during the month of October.

Compliance Week has been tracking these disclosures all year.

Starting Nov. 15, public companies will be required to assess the effectiveness of their internal control over financial reporting. The requirement in mandated by Section 404 of The Sarbanes-Oxley Act of 2002. However, many of the current disclosures are being driven by Section 302 of the Act, which requires management to--among other things--indicate whether there have been significant changes in internal control over financial reporting.

Among Compliance Week's findings:

--53 percent of the weakness and deficiency disclosures involved the company's financial systems and procedures. Typically, these problems are related to the financial close process, account reconciliation, or inventory processes.

--31 percent of the disclosures were related to personnel issues; typically cited were poor segregation of duties, inadequate staffing, and related training or supervision problems.

--For the fifth straight month, companies continued to provide detailed remediation disclosures, outlining specific steps taken to improve controls.

--Companies also continue to make disclosures of "potential" problems before weaknesses or deficiencies have been identified.

--The October data also highlighted the sometimes confusing overlap between a company's disclosure controls and procedures, and its internal control over financial reporting.

Among the companies making disclosures in October was Levi Strauss & Co., Veritas Software, Qwest Communications, Toyota Motor Credit Corp., $2.2 billion Rent-A-Center, and others. The complete list of disclosures and analysis is available at http://www.complianceweek.com

Also in this week's edition of Compliance Week:

--Securities and Exchange Commission Chief Accountant Donald Nicolaisen tells Compliance Week that the SEC may postpone the implementation of Section 404 of the Sarbanes-Oxley Act for smaller companies.

--A review of the "qualitative materiality" standard impacted by the SEC's decision last month to fine KPMG $10 million over its audit of Gemstar-TV Guide International.

--The connection between stock repurchase plans, stock option expensing, and earnings-per-share.

Members of the media can request a copy all articles by sending an email to editor@complianceweek.com, or by calling Compliance Week at (888) 519-9200.

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