While Section 404 of Sarbanes-Oxley says management is responsible for establishing and reporting on a company's system of internal controls, more than half of 329 companies reporting control deficiency disclosures did so because their external auditors identified and reported those weaknesses, according to a report by the Financial Executives Research Foundation.
In a study of internal controls reporting by 329 companies, 54 percent made control deficiency disclosures because their external auditors identified the weaknesses and reported them to the audit committee. Only 28 percent of companies were proactive in bringing the reported control deficiencies to the attention of their external auditors and the audit committee, according to the report, "Control Deficiency Reporting," by Lehigh University accounting professor Parveen P. Gupta and Tim Leech, principal consultant and chief methodology officer of Paisley Consulting.
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