According to an analysis by Compliance Week, the number of material weaknesses reported by large companies nosedived in 2007, largely due to SOX section 404 and improvements in internal control and the financial reporting community.
Compliance Week’s Material Weaknesses in Internal Control Over Financial Reporting analyzed 10-K and 10-K/A filings for 426 companies from the S&P 500. Of that group, 11 companies reported a total of 14 material weaknesses. The top problem areas included taxes (six reported weaknesses), financial procedures and personnel (two each), and revenue recognition and documentation (one each). The remaining two material weaknesses were considered in the area of “other accounting.”
Compliance Week performed the same analysis in 2006 with dramatically different results—nearly 900 material weaknesses were reported that year.