March 10, 2005

Audit Committee Reports Addressing Internal Controls

In the Nov-Dec issue of The Corporate Counsel (p.8), Mike Gettelman suggested that companies use their Audit Committee Report to discuss their internal controls’ process and costs. Below are some companies that have made such disclosure in their Audit Committee Reports, but none of these go as far as Mike recommends (i.e. none of these examples disclose the level of time and money spent):

Morgan Stanley

I am surprised that not more companies are making this disclosure so far, particularly given Linda Griggs observations on this topic made at the end of her interview with me conducted a few weeks back.

More Sample Internal Control Disclosures

We continue to update the laundry list of companies that have disclosed material weaknesses in our “Internal Controls – Deficiencies and Weaknesses Identified” page (which is available in our “Internal Controls” Practice Area).

Here are a sampling of this samples: In its Form 10-K, Informatica voluntarily discloses a signficant deficiency in its report, but its controls are still effective. And Mim Corporation discloses in its Form 10-K that it has an adverse opinion because its internal controls aren’t effective due to material weaknesses, including an ineffective audit committee!

Trust Preferred Developments

Last week, the Federal Reserve Board released its final rules on the capital treatment of trust preferred securities and other capital instruments. The rule largely reflects the Fed’s May 2004 rule proposal and comprehensively integrates prior Fed guidance on capital instruments, particularly those issued by bank holding company subsidiaries.

We have created a new “Trust Preferred Securities” Practice Area that include law firm memos on the Fed’s new rules as well as a host of other resources.