Spilt milk: Parmalat and Sarbanes–Oxley internal controls reporting

One of the more controversial provisions of Sarbanes–Oxley is Section 404 which requires management of a publicly held company, whether US or non-US, to attest to the quality of a corporations' ‘internal controls’ in its annual report filed with the SEC. The international aspect of Section 404 has been hotly contested by foreign issuers in cross-border relationships as being unnecessary for non-US companies. This paper provides an overview of Section 404 and the associated US accounting rules with an international context in mind, particularly in light of the Parmalat scandal. Included in the paper is a discussion of the juxtaposition of, and the theme toward convergence in, Section 404, US accounting and auditing rules, international accounting standards, and the proposed EC corporate governance initiatives.