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Proposal Would Allow Auditors to Evaluate Those Who Hire Them

Hamilton James | November 25, 2003

In order to enhance the quality of reporting and increase investor confidence, Section 404 of the Sarbanes-Oxley Act requires that annual reports filed with the SEC must be accompanied by a statement by company management that management is responsible for creating and maintaining adequate internal controls.

Management must also present its assessment of the effectiveness of those controls.

In addition, the company's auditor must report on and attest to management's assessment of the company's internal controls. The Act specifically provides that the new Public Company Accounting Oversight Board should set the standards for this auditor attestation.

Indicators Of Weaknesses

Under SEC rules implementing Section 404, management cannot say that a company's internal controls are effective if it identifies one or more material weaknesses in them. In the SEC's view, an aggregation of...

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