Volume 14, No. 2

 

The 404 Fever: Investor Basics On Internal Control Reports  Section 404 of the Sarbanes-Oxley Act lit a fire under firms, pushing them to evaluate their systems of internal controls over financial reporting. The Act required more than just mere evaluation of the systems - it also mandated the inclusion of a report on their internal control systems in their 10-K filings, complete with attestation from their auditors as to its working condition at year end. Such reporting is virgin territory for firms, auditors, and investors: until the Enron and WorldCom scandals, internal controls over financial reporting were the unappealing innards of a company. It's the earnings, stupid has always been the mantra for most investors, not It's how the earnings were developed, stupid. That may be about to change, as the new reports land on investors' desks in the next few months. The new reports will provide new views of what goes on inside companies; it might scare the daylights out of investors or just bore them. Here's what analysts and investors need to understand before the reports arrive.

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