In response to the requirements of SOX 404, a majority of public companies adopted the 1992 framework prepare by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to assess the design and effectiveness of their internal controls over financial reporting. Effective as of December 14, 2014, COSO no longer makes the 1992 framework available and encourages public companies to transition to its revised framework – COSO 2013.
Public companies are required, on an annual basis, to evaluate the effectiveness of their internal controls over financial reporting and to disclose in their 10-K the results of such evaluation and the framework used to make such evaluation. Public companies must also disclose any material changes to internal controls – for example changes resulting from a transition to COSO 2013.
Companies who delay the transition to COSO 2013 face the risk of increased scrutiny by the SEC. In a recent public meeting, the SEC staff stated “the longer issuers continue to use the 1992 framework, the more likely they are to receive questions from the staff about whether the issuer’s use of the 1992 framework satisfies the SEC’s requirement to use a suitable, recognized framework”. To avoid questions form the staff, smaller reporting companies will want to take steps to transition to COSO 2013.
For more information regarding this topic, please feel free to contact Daniele Ouellette Levy.