Sarbanes-Oxley Unsustainable says FEI
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Two reports from FEI have found that companies consider the current compliance efforts unsustainable. The reports cover Sarbanes-Oxley compliance and Management's Reports on Internal Controls. The Financial Executives Research Foundation (FERF) is the affiliated resarch arm of Financial Executives International (FEI) Concurrent with the release was the FEI's Conference on Current Financial Reporting Issues. 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. Central finding of the report is that process improvements are required as the current effort is unsustainable. Suggested improvements include top-down approach to risk and planning; risk-based testing, automate controls and documentation. Additionally the companies were working towards external auditors relying more on the managements own testing. Management's Reports on Internal Controls analyzed the disclosures and auditors findings filed in Securities and Exchange Forms 10-K and 10-K/A to identify common formats and inclusion of all required statements. Report findings include:- COSO All used the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework. Form 10-K Management tend to put the control evaluation and management's report in item 9a. SEC Rules Virtuall all follow the sequence laid down by the SEC:- management's responsibility, the framework used, management's assessment and the accounting firm attestation. Audit Reports Most firms had one for the financial statement audit and one for internal control. SEC exclusion Many firms took advantage of these on control assessments of new acquisitions. Material Weaknesses Most common reasons were income tax and lease accounting.
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