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Compliance Week: Companies Now Disclosing Adverse Opinions On Sarbanes-Oxley Section 404

Compliance Week: Companies Now Disclosing Adverse Opinions On Sarbanes-Oxley Section 404

by Rick Turoczy on February 9, 2005

According to a review of internal control disclosures made during the month of January 2005, several companies disclosed that their internal control over financial reporting was not effective as of their fiscal year end, and that they expected their auditor would issue an adverse opinion on the effectiveness of those controls.

However, experts warn that the disclosures do not necessarily mean that a large number of companies will fail the internal control test of Sarbanes-Oxley Section 404. “It is still too early to tell,” Protiviti managing director James DeLoach told Compliance Week. “We need more data points to get a reliable read as to where this trend line is going.”

Estimates on the number of companies that might fail the SOX 404 test have varied widely, with most predicting that 10 percent may receive adverse opinions by auditors. In January, 9.7 percent of the 10-Ks (filed by companies with over $75 million in revenue) included a weakness or deficiency disclosure, and only 4.7 percent of the 10-Qs included such an announcement.

Compliance Week: Companies Now Disclosing Adverse Opinions On Sarbanes-Oxley Section 404

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