It may be a familiar story, but it's getting serious now. Section 404 of the Sarbanes-Oxley Act, which deals with internal controls, comes into force for US corporates tomorrow and an alarming majority are unprepared for the changes.
All US companies with fiscal years that end after tomorrow will have to assess the effectiveness of their internal financial reporting controls and state how effectively they are operating effectively in their annual reports.
Although this will affect relatively few companies to begin with, companies that report on a calendar year basis, which is the majority of them, will have to comply with the internal reporting controls from the beginning of next year.
And even though the US Securities and Exchange Commission has delayed the implementation of Section 404 twice, a report by PricewaterhouseCoopers has found that 80% of companies are unprepared for the new requirements.
A report by 700 PwC audit teams found that just 20% of its clients were on schedule to complete their internal control reviews, according to PwC chairman Dennis Nally.
Even if companies meet their reporting deadline, their internal controls must be found to be adequate.