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Monday, December 13, 2004
SEC Expects Internal Controls Problems
WASHINGTON (Reuters) - An increasing number of corporations are likely to announce "material weaknesses" in their internal financial controls in the coming months, a top U.S. accounting regulator said on Monday.
Securities and Exchange Commission Chief Accountant Donald Nicolaisen said he expects these announcements to come as companies move to comply with a new rule imposed by the post-Enron Sarbanes-Oxley accounting reforms.
"Additional attention to internal controls is warranted," Nicolaisen said at a conference held by the American Institute of Certified Public Accountants.
The new rule, spelled out in Section 404 of Sarbanes-Oxley, requires company managers to explain in annual reports how they go about ensuring that their financial houses are in order.
The rule also requires companies' outside auditors to review and comment on management's reports.
Nicolaisen said it was to be expected that some companies would have trouble complying with the new rule in its first year of implementation.
Faced with a flurry of complaints about burdensome new rules, the SEC in late November postponed a deadline for some companies to submit reports on their internal controls.
Under the SEC's action, some companies will have an additional 45 days to file the reports with the commission. They have to submit annual reports to the SEC within a certain period after their fiscal years end. That time period is 75 days this year.
The internal controls report postponement applies to companies with fiscal years ending between Nov. 15, 2004 and Feb. 28, 2005, and with public equity float between $75 million and $700 million as of mid-2004, the SEC said last month.
Eligible companies will now have 45 days after the expiration of the 75-day reporting window to amend their annual reports with the required management report on internal controls, as well as the auditor's comment, the SEC said. )
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