Sherman and Swalwell Introduce the Internal Control Disclosure Improvement Act
WASHINGTON, DC - Today Congressman Brad Sherman (D-Sherman Oaks), who chairs the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, and Congressman Eric Swalwell (D-Castro Valley) introduced the Internal Control Disclosure Improvement Act, a bill to ensure that public companies which have been subject to certain Securities and Exchange Commission (SEC) accounting and auditing enforcement actions proactively disclose internal accounting controls in the future.
The availability of accurate and reliable financial reporting by publicly traded companies is key to the health of the U.S. capital markets. At the core of the financial reporting process are the accounting practices companies employ to collect and organize information before making it available to shareholders. The Sarbanes-Oxley Act of 2002 helps assure that financial statements are accurate by requiring that large public companies directly maintain internal control over financial reporting (ICFR).
While the SEC and Public Company Accounting Oversight Board maintain additional measures intended to make sure companies’ ICFR is effective, it is up to individual companies to establish their own specific internal controls. For many companies, an important component of their internal control structure is the process of performing balance sheet account reconciliations.
Although most companies seem to perform account reconciliations prior to issuing quarterly and annual financial disclosures, a number of firms have been subject to SEC accounting enforcement actions related to failings in this area. The Internal Control Disclosure Improvement Act will address this issue by requiring that public companies which have been subject to this form of SEC accounting enforcement action, disclose in future quarterly and annual financial reports whether account reconciliations have taken place prior to issuing the respective financial report. This will not only incentivize companies to maintain strong internal controls but also ensure that following a failure, shareholders will have greater visibility into company accounting practices.
“Our country’s capital markets have long been, and remain, the envy of the world. I believe that key to maintaining this position is ensuring that investors have not only visibility into the financial health of the companies they buy, but also confidence that the disclosures they receive are accurate and reliable,” said Congressman Sherman. “That is why I believe the Internal Control Disclosure Improvement Act represents an important step toward improving the health of our markets.”
“Honesty and transparency are vital to the strength of, and confidence in, America’s capital markets,” said Congressman Swalwell. “The Internal Control Disclosure Improvement Act sheds more light on corporate accounting so that shareholders and investors can be sure the information they rely upon is sound.”
Earlier today, Congressman Sherman led the successful effort to pass major legislation designed to assure financial statement integrity of companies with total market capitalization of $1.8 trillion. Sherman is the co-chair of the bipartisan CPA and Accountants Caucus.
To view the full text of this legislation, click here.