Friday, September 09, 2005
The 411 on 404: Reporting a material weakness in controls can cost shareholders millions and some CFOs their jobs.
What is the cost of uncovering gaps in your company's controls? To judge from 899 cases in which companies reported material weaknesses in 2004 and during the first four months of 2005, the cost is significant. A new report from proxy adviser Glass, Lewis & Co. shows that investors sold stock in companies that made such announcements, driving their average share price 4 percent lower relative to the market. Share price also dropped when 404-compliance efforts led companies to delay their 10-K filings.
The most costly control issues were in the area of tax accounting, which contributed to a stock-price loss of almost 6 percent. Documentation controls and personnel issues in the finance department proved nearly as expensive. The most commonly reported errors were in financial systems and procedures, which accounted for 36 percent of all control weaknesses.
posted by Brian Moran @ 4:15 PM