SEC Issues Guidance On Internal Control Rules And Redefines "Material Weakness"

The SEC has taken several steps to help issuers comply more cost-effectively with the internal control rules under section 404 of the Sarbanes-Oxley Act of 2002. The new measures include the following:

• The SEC has provided guidance for management on how to evaluate a company’s internal controls using a top-down, risk-based approach. This new guidance is voluntary, so issuers that are already complying with section 404 will not be compelled to alter their existing procedures.

• The SEC has eliminated the requirement for auditors to provide an attestation of management’s assessment. Instead, auditors will have to provide only an opinion on the actual effectiveness of the issuer’s internal controls. (Under the prior rules, the auditors had to provide both the attestation and the opinion.)