Beginning today, companies have 75 days following any financial year-end to comply with Section 404 of the Sarbanes-Oxley reforms – and accountants say many may soon be admitting they cannot.
Section 404 of Sarbanes-Oxley requires a company’s auditor to verify that management has adequate controls to ensure reliable financial reports and comply with a series of related rules. PricewaterhouseCoopers Chairman and Senior Partner Dennis Nally said about 10% of companies, based on information from 700 of the accounting firm’s partners, are at “severe risk” of not finishing assessments in time for it to render an opinion on the controls, according to a Reuters report.
There will also likely be disclosures from companies who discovered problems while probing their bookkeeping methods. Given a low threshold set by regulators for the definition of a “material internal control weakness,” Nally told reporters he would not be surprised if the number of companies disclosing such issues is as high as 20%.