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The Committee of Sponsoring Organizations of the Treadway Commisson, or COSO, issued for public comment Wednesday a draft report that gives small businesses guidance on how to comply with new internal control requirements in a more “cost efficient” and “practical” way. COSO, a private group devoted to improving financial reporting, said it will seek public comment on the draft through Dec. 31 and plans to issue a final version in the first quarter of next year. Section 404 of the Sarbanes-Oxley Act requires public companies to annually assess their internal controls over financial reporting, and have those controls reviewed by the company’s outside auditor. Large companies began these expensive and time-consuming audits last year but smaller companies, who have complained vociferously, have been given a reprieve until 2007. The COSO guidance is meant to tailor the internal control procedure for smaller companies so cost structures are more manageable. “It was important for us to demonstrate how smaller public companies can implement effective internal control in a different manner than do their larger counterparts,” Larry Rittenberg, COSO chairman said in a statement. He added that “management’s hands-on approach in smaller businesses may create opportunities for controls to be less formal without decreasing their quality.” The report gives small companies decision making tools meant to help strengthen internal controls. For example: broadening the pool of audit committee members, using controls already built into accounting software, leveraging management monitoring and outsourcing some activities. Securities and Exchange Commission Chief Accountant Donald Nicolaisen commended the effort as “an important step forward” in helping smaller businesses meet the internal controls requirements outlined in �404 of the Sarbanes-Oxley Act. “Section 404 is too important not to get right, but getting it right requires both effective and efficient implementation. The staff will continue to monitor and assess the effects of the internal control reporting rules on smaller public companies,” Nicolaisen said in a prepared statement issued Wednesday. COSO was formed in 1985 and is made up of participants from the American Institute of Certified Public Accountants, the American Accounting Association, Financial Executives International, the Institute of Management Accountants and the Institute of Internal Auditors. Observers from the SEC and the Public Company Accounting Oversight Board also participated in the project. Copyright �2005 TDD, LLC. All rights reserved.

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