Sample Management Reports on Effectiveness of Internal Control over Financial Reporting

Sample Management Reports on Effectiveness of Internal Control over Financial Reporting

Sample Management Reports on Effectiveness of Internal Control over Financial Reporting Purpose Guidance on the preparation of management’s reports on the effectiveness of internal control over financial reporting is provided by the following. * Item 308(a) of Regulation S-B and S-K, 17 C. F. R 228. 308(a) and 17 C. F. R. 229. 08(a) * Questions 1, 2, 3, and 19 of Internal Control over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports: Frequently Asked Questions, published by the staff of the SEC Office of the Chief Accountant and the Division of Corporation Finance The following are examples of such reports. Example 1: Management Report when internal control over financial reporting is effective The management of [company name] is responsible for establishing and maintaining adequate internal control over financial reporting.

This internal control system was designed to provide reasonable assurance to the company’s management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. [Company name] management assessed the effectiveness of the company’s internal control over financial reporting as of [year-end].

In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of [year-end], the company’s internal control over financial reporting is effective based on those criteria. [Company name]’s independent auditors have issued an audit report on our assessment of the company’s internal control over financial reporting.

This report appears on page XX. Example 2: Management Report on internal control over financial reporting when material weaknesses have been identified [Introductory paragraph-same as in example 1. ] [Optional, inherent limitations paragraph-see example 1. ] An internal control material weakness is a significant deficiency, or combination of them, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

The management of [company name] assessed the effectiveness of the company’s internal control over financial reporting as of [year-end], and this assessment identified the following material weakness in the company’s internal control over financial reporting. [Describe the material weakness. ] [Company name] management assessed the effectiveness of the company’s internal control over financial reporting as of [year-end]. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Because of the material weakness described in the preceding paragraph, management believes that, as of [yearend], the company’s internal control over financial reporting was not effective based on those criteria. [Company name]’s independent auditors have issued an attestation report on management’s assessment of the company’s internal control over financial reporting. It appears on page XX. [From The Sarbanes-Oxley Section 404 Implementation Toolkit by Michael Ramos]