Research on material weaknesses among smaller public companies complying for the first time with Sarbanes-Oxley section 404 found that the highest number of missteps are related to accounting and disclosure controls.
A study by Lord & Benoit, a firm specializing in SOX compliance, identified what it described as the 10 leading material weaknesses among 148 companies with revenue of less than $100 million. Companies with effective internal controls were excluded from the study.
Nearly two-thirds of the companies with material weaknesses had issues linked to accounting and disclosure controls, including inadequate or inaccurate financial statement disclosures and departures from GAAP. Other leading problem areas included:
Competency and training of accounting personnel
Design of controls/lack of effective compensating controls
Financial closing process
Inadequate account reconciliations
Consolidations, mergers and intercompany accounts