The Finance GRC research practice has finalized a study that examines approximately 25 companies that issued material restatements after their management (CEO and CFO) and auditors previously attested in SOX Section 404(a) and 404(b) filings, respectively, that controls over financial reports were “effective.” Focused on companies classified by the SEC as accelerated filers, the study serves as a “call to action” for further research. Click here to view the study.

Analysis conducted by Audit Analytics indicates that more than one in 10 accelerated filers issued restatements of accounts in 2006. We believe that a large percentage of these companies are likely to have issued “clean” control effectiveness opinions that were verified by their external audit firm. By studying instances of SOX 404 control effectiveness prediction error we hope to be able to determine whether the problem is attributable to:

1. The risk and control assessment methods prescribed by regulators, including any control framework that the SEC has deemed meets its “suitability criteria” (In other words, management and auditors both followed the rules in a reasonable fashion and got it wrong),
2. The specific assessment methods, tools, and implementation approach used by a particular registrant and/or its audit firm
3. Some combination of 1 and 2.

We recognize that getting total access to the necessary information may be challenging, but we hope to enlist the aid and cooperation of companies that are identified in this segment in order to improve the current high rate of CEO/CFO control effectiveness prediction error.