All protests aside, Section 404 seems to be working as planned.
Only 2 percent of companies in their second year of compliance with Sarbanes-Oxley — and the Section 404 requirements on assessing and documenting internal controls over financial reporting — disclosed that their controls were ineffective, reported Compliance Week.
The publication studied nearly 300 year-end filers with annual revenue of more than $1 billion. Only six reported ineffective controls: American International Group, Dynegy, Eastman Kodak, General Motors, Loews, and Visteon. Compliance Week also acknowledged several companies that restated their financials in recent years but that reported effective internal controls and clean audit opinions for 2005; they include Goodyear, Qwest Communications, Tenet Healthcare, and Xerox.
Compliance Week also noted preliminary numbers from a study by PricewaterhouseCoopers, which found that nearly 80 percent of companies that filed adverse opinions about their Sarbanes-Oxley compliance in 2004 had improved their internal controls over financial reporting for 2005.
The study reportedly examined the assessments of internal controls in the annual reports of 2,573 companies in their second year of compliance, as of April 17. Only 82 companies filed adverse opinions this year, compared with 371 a year earlier.
“To me, this asserts very clearly that 404 is delivering value,” Raymond Beier, a senior partner at PwC, told Compliance Week. “It put a spotlight on the system and caused companies to react. This data proves companies are reacting.”