On May 16, 2005, the SEC issued its Staff Statement on Management’s Report on Internal Control Over Financial Reporting. Concurrently, the Public Company Accounting Oversight Board (PCAOB) issued its Policy Statement Regarding Implementation of Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements.
These reports are intended to provide guidance to company management and registered public accounting firms about more effective, and more cost-effective, implementation of Section 404 of the Sarbanes-Oxley Act of 2002.
Background
Section 404 directed the SEC to adopt rules requiring public companies to include in their annual reports a statement of management’s responsibility for establishing and maintaining adequate internal control over financial reporting.
Section 404 also requires that each registered public accounting firm that issues an audit report on a company’s annual financial statements must attest to management’s assessment of internal control over financial reporting in accordance with standards set by the PCAOB.