SEC adopts internal control provisions of Sarbanes-Oxley

New rule goes into effect in 2004

By: IE Staff
May 28, 2003 May 28, 2003
14:20

The Securities and Exchange Commission voted on Tuesday to adopt another rule implementing the Sarbanes-Oxley reforms.

The rule concerns management’s report on internal control over financial reporting and certification of disclosures in periodic reports.

The new rules require each annual report to contain: a statement of management’s responsibility for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and management’s assessment of the effectiveness of the company’s internal control structure and procedures for financial reporting.

Company auditors are also required to attest to, and report on management’s assessment of the effectiveness of the company’s internal controls and procedures for financial reporting in accordance with standards established by the Public Company Accounting Oversight Board.

Under the final rules, management’s annual internal control report will have to contain:

a statement identifying the framework used by management to evaluate the effectiveness of this internal control;
management’s assessment of the effectiveness of this internal control as of the end of the company’s most recent fiscal year; and
a statement that its auditor has issued an attestation report on management’s assessment.

Under the new rules, management must disclose any material weakness and will be unable to conclude that the company’s internal control over financial reporting is effective if there are one or more material weaknesses in such control.

Compliance with the rules regarding management’s report on internal controls will be required by U.S. companies that have equity market capitalization over US$75 million and have filed an annual report will be required for fiscal years ending on or after June 15, 2004.

All other issuers will be required to comply for their fiscal years ending on or after April 15, 2005.