PricewaterhouseCoopers has released to the public a white paper on how executive officers can meet new reporting requirements mandated by the Sarbanes-Oxley Act.
Affecting all public companies, the Act has established a new requirement that CEOs and CFOs explicitly evaluate and report to the public on the effectiveness of internal controls over financial reporting.
To assist companies' compliance, PricewaterhouseCoopers' paper, The Sarbanes-Oxley Act of 2002: Strategy for Meeting New Internal Control Reporting Challenges: A White Paper, offers the following guidelines:
Executives should implement a framework for internal control to establish and evaluate controls across an organization to build public trust.
The key players in the financial reporting supply chain — executives, boards of directors and independent auditors — must work together, with critical cross-checks, to achieve a similar goal.
Companies have no choice as to whether to put effective controls in place; therefore, decisions must be made about how to best achieve compliance and create a culture of accountability that supports it, now and in the future.
Companies should create a Spirit of Transparency, cultivate a Culture of Accountability, and employ People of Integrity.
When evaluating its internal controls and procedures, companies may find it useful to apply an internal controls maturity framework to determine whether existing or proposed controls for a given activity are rigorous enough to manage related risks and sufficiently documented for subsequent internal and external review.
Clear documentation of the design of internal controls over financial reporting and of testing of the effectiveness of these controls will be critical.
While implementing effective internal controls to satisfy financial and other reporting obligations, companies can reap extended benefits by applying a dynamic risk management process that covers critical risk exposures and enables the company to identify and respond quickly to changing conditions.
“To maximize the effectiveness of the control process, companies should seek to develop an action plan for overseeing the performance of a quarterly review of its existing control structure and determining whether remedial actions are needed to satisfy relevant provisions of Sarbanes-Oxley and related rules,” said Lynn Edelson, Partner and Leader of PricewaterhouseCoopers U.S. Sarbanes-Oxley advisory services task force. “An effective action plan can help a company communicate what needs to be done, organize who will do it, and monitor and act on the results.”