However, FPIs must move quickly to understand likely areas of challenge and to adapt their strategies accordingly.
A survey recently released by Ernst & Young reveals key opportunities and findings.
- Perform entity-level testing earlier 45% of companies surveyed anticipate that most entity-level testing will occur in the third or fourth quarter. Shifting a portion of this to earlier quarters may reduce the need for detailed testing in some areas, as well as highlighting problem areas at the entity-level, in time to perform remediation.
- Apply appropriate rigour to the tax area nearly two-thirds of companies have not re-evaluated their approach to tax, despite the pervasiveness of tax issues among accelerated filers. Only 40% have a member of the tax function on their 404 project team.
- Protect internal audit coverage over one-third of companies will be devoting more than 50% of internal audit resources to 404-related activities, leaving potential coverage gaps in non-financial reporting risk areas.
- Seek added value from your 404 efforts 80% or more of companies noted that they derived added value through enhanced financial processes and improved accountability for, and ownership of, controls.
The detailed survey is based upon responses covering more than 100 US-listed FPIs, in late 2005. It provides a summary and analysis of findings regarding full-scale pilots, material weaknesses and issues reported by accelerated filers, initial implementation year activities, as well as ongoing strategies. An additional section provides examples of significant accounts that may present unique or challenging issues in conjunction with management's Section 404 evaluation of internal control over financial reporting.