The profession has argued for decades about the advisability of mandatory reporting on internal control by public companies and by governmental entities. In the 1970s and 1980s, the main players in the debate were the Commission on Auditor's Responsibilities (the Cohen Commission), the AICPA, and the SEC, among others, and their arguments were chronicled in L. M. Savoie and D. N. Ricchiute, Reports by Management: Voluntary or Mandatory Journal of Accountancy (May 1981), pp. 8494. More recently, in addition to the AICPA and the SEC, new players, most supportive of mandatory reporting, have entered the debate, including the Commission on Fraudulent Financial Reporting (the Treadway Commission), the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, the U.S. General Accounting Office, and the Federal Deposit Insurance Corporation (FDIC), which, through the FDIC Improvement Act, requires public reporting for large federally insured banks and thrifts. The COSO Report: Challenge and Counterchallenge, Journal of Accountancy (February 1993), pp. 1018, reprints two pointed letters exchanged by COSO and the GAO, some of which bears directly on the debate in the 1990s. Prior to the Sarbanes-Oxley Act of 2002, Section 404, about one in four public companies and three in five Fortune 500 companies voluntarily reported on internal control.
Required: Select a Form 10-K for a period ended prior to November 15, 2004 (the effective date of Section 404), that includes a report by management on internal control, and a Form 10-K for a period ended after November 15, 2004, that includes managements assessment of internal control over financial reporting, and draft a report that:
1. Compares the two reports.
2. Argues either for or against public reporting on internal control.
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Running Head: PUBLIC REPORTING
Public Reporting on Internal Control
The internal control plays an important role in public and government entities. It is because; the implementation of internal control makes the organization accountable for the society and government. The Securities and Exchange Commission implemented the section 404 on November 15, 2004 that was concerned for the internal control over the financial reporting and certification of disclosure. Section 404 directs the companies to adopt some rules that required content in 10-K and annual report for the management's responsibility for the establishment and maintenance of adequate internal control structure and procedure for the financial reporting. It also requires including the management's assessment of internal control over financial reporting in annual report and form 10-K (SEC Implements Internal Control Provisions of Sarbanes-Oxley Act, 2010).
Comparison of Reports
The form 10-K report for the year ended December 31, 2003 ad for the year ended December 31, 2006 of the Ford Motors is taken. Both reports include the required section related to the internal control system over the financial reporting of the business. The report prior 15 November 2004 includes the report of management over the internal control. On the other hand, the report after this date includes the management's assessment of internal control over the financial reporting. The report prior the date includes the evaluation of the disclosure controls and procedure that defines that how the company performs disclosure controls and procedure. The company didn't change the internal controls over its financial reporting prior the date due to less rules and regulation on the mandatory of it (Ford Motor Credit Company, 2003). The ...
The solution discusses reporting on internal control, specifically for public companies.