30 Apr COVID-19 Adjustments Bring Heightened Awareness to Internal Controls
Earth-wide, businesses have had major shifts in their routine operations, labor environments, and internal controls due to the COVID-19 pandemic and it’s continued aftermath.
A large part of management’s responsibilities within an organization as a result of the Sarbanes-Oxley Act of 2002 (SOX) includes the requirement for officers to certify information contained in annual and interim reports. In addition to other things, the rules require that officers certify that they have included an evaluation of internal controls, including whether there have been any significant changes in an entity’s internal controls.
The pandemic effect has increased remote operations and can lead to disruptions in internal controls, therefore, businesses need to consider these factors when preparing financial reporting. With many companies operating remotely and many employees working from home, there may be changes in how some processes and existing controls are operating without their knowledge. These new risks need to be identified and will require new or additional controls and procedures.
These realities bring to the fore the importance of internal control over financial reporting (ICFR) and disclosure controls and procedures (DCP). Management is required to evaluate the effectiveness of its ICFR at the end of each fiscal year, and DCP at the end of each fiscal quarter. It is understandable that many registrants made changes during the past year to their financial reporting processes in a remote work environment. But preparers need to be reminded that if any change materially affects, or is reasonably likely to materially affect, an entity’s ICFR, such change must be disclosed in quarterly filings in the fiscal quarter in which it occurred.
In this present uncertain and volatile environment, organizations need to ensure that significant judgments and estimates are disclosed in a manner that is understandable and useful to investors, and that the resulting financial reporting reflects and is consistent with the company’s specific facts and circumstances. There is no doubt that internal controls play a major role in ensuring accurate reporting and a clearer depiction of an organization’s current status and the adjustments that may be needed to guarantee continued stabilizing and growth despite the external business climate, with or without pandemic.
Our team of qualified and client-geared staff at FPV & Galindez can work with any entity to evaluate and improve their internal controls and procedures. Learn more by contacting us directly here.