Doctor Essay

2477 Words10 Pages
How Useful Are Management Reports on Financial Statements? by Jonathan B. Schiff , Claire B. May The management report now included voluntarily in many corporate annual reports soon may become a requirement under a new Securities and Exchange Commission (SEC) rule. Management responsibilities for the content of financial statements as well as the effectiveness of the internal controls system are two features most likely to be addressed. The management report also is a focal point of the March 12, 1991, exposure draft, Internal Control--Integrated Guidance, published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The companies that have issued management reports voluntarily have done so in response to an earlier SEC request. Our analysis of this voluntary compliance over the last six years suggests these companies have used the management report to improve communication with the financial statement user and corporate stakeholder communities. PREVENTING ABUSE Interest in the management report began around 1977 when Congress passed the Foreign Corrupt Practices Act (FCPA) to control questionable or illegal foreign payments by U.S. companies. To improve the veracity of financial reporting and to prevent abuses from occuring, the FCPA also required that all public companies keep adequate records of their financial activities and maintain a system of internal accounting controls. To further these goals, in 1979 the SEC proposed a rule that would have required management of publicly traded firms to include a "Report of Management's Responsibilities" in the annual reports to stockholders. In this report, management would have acknowledged its responsibility for internal accounting control. This proposed rule was withdrawn, however, due to opposition to a requirement that this statement be examined and reported on by an independent accountant.

More about Doctor Essay

Open Document