SEC approves new internal control reporting guidance
24 May 2007
The US Securities and Exchange Commission has unanimously approved interpretive guidance to help public companies strengthen their internal control over financial reporting while reducing unnecessary costs, particularly at smaller companies.
The new guidance will enhance compliance under Section 404 of the Sarbanes-Oxley Act of 2002 by focusing company management on the internal controls that best protect against the risk of a material financial misstatement. The guidance is based on two broad principles:
- Management should evaluate whether it has implemented controls that adequately address the risk that a material misstatement in the financial statements would not be prevented or detected in a timely manner.
- Management's evaluation of evidence about the operation of its controls should be based on its assessment of risk.