FLORHAM PARK, N.J.
Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International (FEI), has published a comprehensive report, "Control Deficiency Reporting," relating to the internal control requirements of Sarbanes-Oxley. The analysis is based on 968 internal control deficiencies and 1,000 remediation actions disclosed by 329 companies in their various SEC filings between November 1, 2003 and October 31, 2004.
"Control Deficiency Reporting" was researched and prepared by Parveen P. Gupta, the Frank L. Magee Distinguished Professor of Accounting at Lehigh University, and Tim Leech, Principal Consultant and Chief Methodology Officer with Paisley Consulting.
"This analysis of internal control disclosures is a valuable read for regulators, corporate executives, legislators, regulators and legal counsel who have been looking at Sarbanes-Oxley section 404 compliance," said Colleen Cunningham, President of FEI.
Among the report''s highlights:
- The 329 companies disclosed three internal control deficiencies, on
average. The larger a company's market cap, the more control
deficiencies it reported: small cap companies disclosed an average of
2.51; mid caps, 2.71; and large caps, 3.71. Disclosed remediation
actions tracked similarly, with small caps averaging 2.5 disclosures;
mid caps, 3.02; and large caps, 4.76.
- More than half of the disclosed control deficiencies in the sample were
classified as material weaknesses.
- Sales revenue, accounts receivable, inventory and accounts payable were
the most common areas experiencing control deficiencies.
- Less than 4% of the total reported control deficiencies were in the area
of information technology controls.
- For sample firms, about 44% experienced auditor change with a net shift
occurring from Big-4 firms to non Big-4 firms. Big-4 firms had a net
loss of 59 clients while non Big-4 had a net gain of 49 clients.
Taken together, Sections 302 and 404 of Sarbanes-Oxley require public companies to evaluate, on an annual basis, the effectiveness of their internal controls over financial reporting and, on a quarterly basis, the effectiveness of their company's disclosure controls and procedures.
In a related survey of 217 public companies conducted by FEI in March, companies' total costs for the first year of Section 404 compliance averaged $4.36 million.
"Control Deficiency Reporting" can be ordered online at http://www.fei.org/rfbookstore. For information on purchasing the complete report, please contact Lorna Raagas at (973) 765-1033. Cost is $24.95 for FEI members and $49.95 for non FEI members.
About Financial Executives Research Foundation (FERF)
Financial Executives Research Foundation, Inc, is the 501(c)(3) non-profit educational affiliate of Financial Executives International. Since 1944, FERF has been an independent source of practical information, service and expertise for senior financial executives. FERF is solely supported by voluntary, tax-deductible contributions from corporations, FEI chapters and individuals. FERF receives no portion of FEI membership dues.
FERF's mission is to meet the needs of the financial management professional by identifying, developing and distributing timely research in a variety of ways. FERF provides a wide range of research-driven content through published research studies, articles in Financial Executive magazine, electronic newsletters and the FEI Web site, among other formats.
About Financial Executives International
Financial Executives International, the leading advocate for the views of corporate financial management, is a professional association of more than 15,000 CFOs, treasurers and controllers. FEI enhances member professional development through peer networking, career management services, conferences, publications and special reports and research. For more information, visit the web site at http://www.fei.org/.
About Paisley Consulting
Paisley Consulting, the leader in business accountability, provides focused solutions on corporate assurance, internal auditing, risk management and compliance. The company's key software offerings include The Paisley Solution, Risk Navigator™, CARD®map, Focus Control Assurance Software®, and AutoAudit®. Services include Collaborative Assurance & Risk Design™ training, Sarbanes-Oxley compliance training courses, and operational risk management training and consulting. With global customers in diverse markets, over 30 percent of the Fortune® 100 companies have chosen to work with Paisley Consulting to meet their business accountability needs. For more information, call 320.286.5870. Email firstname.lastname@example.org or visit http://www.paisleyconsulting.com/.
Contact: Scott Sunshine (for FEI)
Ashiya Smith (for Paisley Consulting)
SOURCE: Financial Executives International
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