The following are steps specific to implementation of internal controls
over financial reporting. Each area of implementation is supported by
customizable Excel spreadsheets and/or Word documents.
PHASE I – PLAN, DOCUMENT AND RISK ASSESSMENT
Develop an Implementation Plan
Step 1 of Phase I is to develop and document an implementation plan. This plan
will serve as a roadmap and timetable for a complete internal control
Step 2 of Phase I is to gather data about the company. This data should be
accumulated into one central area, whether it is collected into hard-copy binders,
or electronic files, is based on personal preference.
Step 3 of Phase I is to assess and identify, through quantifiable methodology, the
accounting line items and process risks that have a direct impact on the financial
statements. The SEC Guidance for Small Business Issuers instructs us that risk
assessment should take a “top-down” approach. In other words, we should
identify only those risks that have a material impact on the financial statements
and design controls around them. This laser-focused approach allows us to
“scale” the internal controls, which results in lower time and costs associated with
the design and implementation of internal controls for Small Business Issuers.
Step 4 of Phase I is to assess the status of the company’s corporate governance.
COSO guidelines suggest that an integral part of internal controls includes
properly documented committee charters and formal codes of ethics. If the
charters and codes of ethics do not currently exist, they must be created, ratified
by the board of directors, signed by the respective board members, corporate
officers and employees, and posted onto the company’s website for the general
public and investors to see.
Phase I Deliverables:
- SOX 404 Implementation Matrix
- COSO Questionnaire
- Significant Accounts Risk Identification Matrix
- Significant Process Risk Identification Matrix
- SOX 404 Planning Memorandum
- Corporate Governance Charters
- Codes of Ethics and Conduct
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