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SEC statement and report on internal controls

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17 May 2005

The US Securities and Exchange Commission has released a statement about the first year's experience in applying the internal control provisions (Section 404) of the Sarbanes-Oxley Act.

The two main conclusions in the Commission's statement are:
  • Compliance with Section 404 is producing benefits, including a heightened focus on internal controls at the top levels of public companies.
  • Implementation in the first year also resulted in significant costs, and the process can be made more effective and efficient.
In April, the Commission asked the SEC staff to consider whether additional guidance and clarification of certain issues was appropriate. The staff has now released a Staff Statement on Management's Report on Internal Control Over Financial Reporting to provide such guidance. In releasing the staff report, the Commission noted that "there is a zone of reasonable conduct by companies that should be recognised as acceptable in the implementation of Section 404." Also, the US Public Company Accounting Oversight Board staff has issued related question-and-answer guidance. Click to download:

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