07/12/06: SOX and COSO working on 404 guidance

SEC:

The SEC has issued a Concept Release soliciting comments regarding Management's Reports on Internal Control Over Financial Reporting:
http://www.sec.gov/rules/concept/2006/34-54122.pdf

The release mainly asks for feedback as the SEC contemplates additional guidance in the future, most likely in the form of rulemaking, in this area. The stated goal would be to develop practical guidance for companies to help improve the reliability of financial reporting and to make Section 404 implementation more efficient and cost effective for investors.

The SEC anticipates that the forthcoming guidance for management will cover at least these areas:

-Identifying risks to financial statement account and disclosure accuracy and the related internal controls that address the risks, including how management might use company-level controls to address the risks

-Objectives of the evaluation procedures and methods or approaches available to management to gather evidence to support its assessment

-Factors management should consider to determine the nature, timing, and extent of its evaluation procedures

-Documentation requirements, including overall objectives of the documentation and factors that might influence documentation requirements

The Concept Release seeks feedback on each of these topics and on whether guidance should be provided in other areas as well.

COSO:

In related news The Committee of Sponsoring Organizations of the Treadway Commission (COSO) today published new guidance on the use of its framework to address the needs of smaller businesses in fulfilling the requirements of SOX 404. The new COSO guidance is intended to help smaller companies more efficiently and effectively implement the SOX 404 internal control requirements. It will also help companies of all sizes understand and apply the fundamental concepts of COSO's internal control framework.