SEC Requires Execs to Certify Fraud Controls

Executives will have to certify that their companies have adequate controls to prevent and detect accounting violations and fraud, under rules adopted Tuesday by federal regulators.

The Securities and Exchange Commission voted unanimously to adopt the requirements, ordered by Congress last summer in response to the wave of accounting scandals. The rules will take effect for most publicly traded companies in June 2004.

The accounting firm that audits a company’s books will have to attest in the annual report that company officials consider the internal controls over financial reporting to be adequate. In addition, company management will have to evaluate and report at the end of each quarter any substantial change in the internal controls.

The accounting industry’s biggest lobbying group quickly praised the SEC’s action, calling it “a giant step toward restoring confidence in the financial reporting process.”

“A public company’s ability to withstand pressures to provide false or misleading information to the public depends a great deal on the effectiveness of internal controls,” said James O’Malley, head of public affairs at the American Institute of Certified Public Accountants.