{"id":1676,"date":"2020-02-27T12:19:26","date_gmt":"2020-02-27T17:19:26","guid":{"rendered":"https:\/\/seci.wpenginepowered.com\/?p=1676"},"modified":"2020-02-27T12:19:26","modified_gmt":"2020-02-27T17:19:26","slug":"icfr-material-weakness-and-disclosure-control-and-procedures-effectiveness","status":"publish","type":"post","link":"https:\/\/seciblog.pli.edu\/index.php\/icfr-material-weakness-and-disclosure-control-and-procedures-effectiveness\/","title":{"rendered":"ICFR Material Weakness and Disclosure Control and Procedures Effectiveness"},"content":{"rendered":"

In this post<\/a> we explored an SEC enforcement case related to ICFR.\u00a0 In that case MetLife reported that they had two material weaknesses and that as a result their ICFR was not effective.\u00a0 The relevant section of their December 31, 2017 Form 10-K ICFR report said:<\/p>\n

\u00a0Management evaluated the design and operating effectiveness of the Company\u2019s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the \u201cCOSO framework\u201d). Solely because of the material weaknesses in internal control over financial reporting described below, in the opinion of management, MetLife, Inc. did not maintain effective internal control over financial reporting as of December 31, 2017. <\/strong><\/p>\n

\u00a0A related question that must be addressed when there is a material weakness in ICFR is whether or not the company\u2019s Disclosure Controls and Procedures (DCP) are effective<\/strong>.\u00a0 As a reminder, Exchange Act Rule 13a-15 defines DCP:<\/p>\n

(e) For purposes of this section, the term\u00a0disclosure controls and procedures\u00a0means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a\u00a0et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management<\/strong>, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.<\/p>\n

DCP clearly applies to an entire report.\u00a0 In a Form 10-K or 10-Q DCP applies to all the non-financial statement disclosures but also to the financial statements<\/strong>.\u00a0 This means that ICFR is essentially a subset of DCP.\u00a0 If a company has a material weakness in ICFR, and ICFR is a subset of DCP, how does that material weakness affect the effectiveness of DCP?\u00a0 Most likely, unless you can demonstrate otherwise with compensating controls or other factors, the company\u2019s DCP are not effective either.\u00a0 Hence, this was MetLife\u2019s DCP report in their December 31, 2017 Form 10-K:<\/p>\n

\u00a0Evaluation of Disclosure Controls and Procedures <\/strong><\/p>\n

\u00a0The Company maintains disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act that are designed to ensure that information required to be disclosed in the Company\u2019s reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC\u2019s rules, and that such information is accumulated and communicated to Company management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.<\/p>\n

\u00a0Company management, including the CEO and CFO, evaluated the effectiveness of the design and operation of the Company\u2019s disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act as of December 31, 2017, the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, the CEO and CFO concluded that the disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below. <\/strong><\/p>\n

As always, your thoughts and comments are welcome!<\/p>\n","protected":false},"excerpt":{"rendered":"

In this post we explored an SEC enforcement case related to ICFR.\u00a0 In that case MetLife reported that they had two material weaknesses and that as a result their ICFR was not effective.\u00a0 The relevant section of their December 31, 2017 Form 10-K ICFR report said: \u00a0Management evaluated the design and operating effectiveness of the … Continue reading ICFR Material Weakness and Disclosure Control and Procedures Effectiveness<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false},"categories":[242],"tags":[],"coauthors":[154],"class_list":["post-1676","post","type-post","status-publish","format-standard","hentry","category-reporting"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/posts\/1676","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/comments?post=1676"}],"version-history":[{"count":0,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/posts\/1676\/revisions"}],"wp:attachment":[{"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/media?parent=1676"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/categories?post=1676"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/tags?post=1676"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/seciblog.pli.edu\/index.php\/wp-json\/wp\/v2\/coauthors?post=1676"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}