Internal control weaknesses in April highlight leases.

• Author: Heffes, Ellen M.
• Position: DomesticNEWS - Illustration

In its ongoing review of internal control disclosures, Compliance Week (May 10, 2005 edition) noted that in April, 58 companies disclosed material weaknesses in their internal control over financial reporting. The number was down significantly from the 116 that were disclosed in March; however, the publication opines, the decrease was "largely due to the high volume of companies filing their annual reports in March."

For year-over-year comparison, only 30 companies made similar disclosures in April 2004, which was prior to the effective date of Sarbanes-Oxley Section 404.

As the chart below indicates, the largest number of disclosure weaknesses--22.6 percent--cited lease accounting. By way of comparison, in the previous month (March), leases and loans accounted for less than 10 percent of disclosures.

The lease-related disclosures, Compliance Week noted, "were being made in wake of a letter written by the Securities and Exchange Commission's chief accountant to a professional accounting group. The letter, written itself after a wave of restatements to correct lease-related accounting errors, reiterated the rules."

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