Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Thursday, June 21, 2007

SEC Issues Interpretive Guidance on Internal Controls

On June 20, the SEC issued interpretive  guidance,  unanimously approved on May 23, to help public companies strengthen their internal control over financial reporting  while  reducing  unnecessary  costs, particularly at smaller  companies.  The  new  guidance  will  enhance compliance under Section 404 of the  Sarbanes-Oxley  Act  of  2002  by focusing company management on the internal controls that best protect against the risk of a material financial misstatement.  The SEC also issued final  rule  amendments  providing  that  a company that performs an evaluation of internal control in  accordance with  the  interpretive  guidance  satisfies  the  annual   evaluation required by Exchange Act Rules 13a-15(c) and 15d-15(c),  defining  the term "material weakness," and revising the requirements regarding  the auditor's attestation report on the effectiveness of internal  control over  financial  reporting.  The  Commission  also  issued  a  release requesting comment on a proposed definition of the  term  significant deficiency."

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