Implementing Sarbanes-Oxley: early feedback.

• Author: de Mesa Graziano, Cheryl
• Position: Regulatory

Four months after the Sarbanes-Oxley Act of 2002 became law, the FEI Research Foundation spoke with financial executives at three public companies to assess their initial responses to the new rules.

Though much of the final rulemaking mandated by the new laws have yet to be established, early attention has centered on financial statement certification and internal controls. The following reports on the compliance experience with the new rules for three public companies.

The CEO and CFO certification process, defined by Section 302 (302) of the Act, was the primary focus of every public company through the early fall. The process calls for the principal executive and financial officers of each public company to include in each Securities and Exchange Commission (SEC) filing a certification that the officers have reviewed the report, that it "does not contain any untrue statement of a material fact," and that it fairly presents the financial condition and results of operations of the issuer.

The CEO and CFO must confirm their responsibility for establishing and maintaining internal controls, and attest that their effectiveness has been evaluated within 90 days prior. The officers must also disclose fraud and internal control deficiencies to the company's audit committee and identify any material control weaknesses to their external auditors.

SEC rules further defined internal controls using a new term, "disclosure controls and procedures," that are designed to ensure that information required for disclosure is recorded, processed, summarized and reported within the time periods specified. The SEC also recommended that companies create a disclosure committee that would report to senior management.

Though certain processes were established prior to the Act, many companies focused early compliance efforts on formalizing disclosure committees and related procedures. The Coca-Cola Co. began formalizing review routines during its third quarter. Connie D. McDaniel, vice president and controller at Coca-Cola, explained that its process included drafting a formal charter for its disclosure committee and is expected to be completed by year-end.

To support the overall CEO/CFO certification, Coca-Cola expanded its existing annual processes to each quarter. Formal written representation is required from each operating unit's president, CFO and legal counsel, as well as the heads of the company's global functions. Modeled after external auditor...