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By Denise Lugo
Dec. 5 — The process used by public companies to enhance the reliability of their financial statements—called internal controls over financial reporting (ICFR)--continues to be a significant concern for the Securities and Exchange Commission.
SEC scrutiny on internal controls is a result of their import to investors, Marc Panucci, an SEC Deputy Chief accountant said.
It’s management’s duty to address inadequacies in this area, he added. “Management has to take responsibility for its assessment of ICFR—that responsibility cannot be outsourced to thirty party consultants,” he said. But, third party consultants can play an important and critical role with assessing management’s evaluation of ICFR.
SEC staff continues to encourage management, audit committees and auditors to engage in regular dialogue on ICFR assessment, Panucci said Dec. 5 at an American Institute of CPAs conference on Current SEC & PCAOB Developments.
“This timely and effective communication between these parties on ICFR remains of continued importance, not only for the accurate assessment of ICFR, but also ultimately for more reliable financial reporting for the benefit of investors,” Panucci said.
The core takeway to companies from the SEC’s findings, said Panucci, is:
• management has the responsibility to evaluate the severity of deficiencies and to timely report all identified material weaknesses in ICFR;
• any required disclosures should allow investors to understand the cause of the control deficiency and the potential impact that they’ve identified about material weakness;
• the importance for management to maintain competent and adequate accounting staff to accurately reflect the transactions and to augment those internal resources with qualified external resources as necessary.
Qualified accounting resources and appropriate processes and controls will play a vital role with the adoption of new accounting standards, said Panucci.
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