The Securities and Exchange Commission has unanimously approved interpretive guidance to help public companies strengthen their internal control over financial reporting while reducing unnecessary costs, particularly at smaller companies. The new guidance will enhance compliance under Section 404 of the Sarbanes-Oxley Act of 2002 by focusing company management on the internal controls that best protect against the risk of a material financial misstatement.
“Congress never intended that the 404 process should become inflexible, burdensome, and wasteful,” said SEC Chairman Christopher Cox. “The objective of Section 404 is to provide meaningful disclosure to investors about the effectiveness of a company’s internal controls systems, without creating unnecessary compliance burdens or wasting shareholder resources.”
According to John W. White, director of the SEC’s Division of Corporation Finance, the commission’s interpretive guidance should reduce uncertainty about what constitutes a reasonable approach to management’s evaluation while maintaining flexibility for companies that have already developed their own assessment procedures and tools. Companies will be able to continue using their existing procedures as long as they meet the standards of Section 404 and SEC rules.
The effective date of the interpretive guidance and adopted rules will be 30 days from their publication in the Federal Register. The full text of the interpretive guidance and rules will be posted to the SEC web site as soon as possible. Read the release.
