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Tuesday, December 06, 2005

Challenges of Section 404 Compliance

Compliance with Section 404 of the Sarbanes-Oxley Act (SOX) is required in 2006. A report by the Public Company Accounting Oversight Board (PCAOB) states that both accounting firms and the public companies they audit will face "enormous challenges" this year as reported in This section of SOX requires that companies document their internal controls.

"It is clear to us that the internal control assessment and audit process has the potential to significantly improve the quality and reliability of financial reporting. At the same time, it is clear to us that the first round of internal control audits cost too much," PCAOB chairman William J. McDonough told

At the time of this writing, McDonough has stepped down as chairman and the Securities and Exchange Commission (SEC) is in the process of finding a replacement with national stature and accounting industry experience according to the Washington Post.

Staff with prior training and experience in designing, evaluating, and testing internal controls will be a challenge especially with the short time companies have to implement Section 404. reported that, "These challenges were compounded in cases in which companies needed to make significant improvements in their internal control systems to make up for the deferred maintenance of those systems," as stated by the PCAOB.

posted by Brian Moran @ 9:37 AM   0 comments


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