COSO guides small companies on internal controls over financial reporting.

The AICPA, as a member organization of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), fully supports the exposure draft (ED) COSO issued October 26 to help small public companies comply with the internal control reporting requirements in Sarbanes-Oxley Act section 404.

The ED, Guidance for Smaller Public Companies Reporting on Internal Control over Financial Reporting, supplements COSO's 1992 guidance, Internal Control--Integrated Framework, and uses realistic examples to illustrate small companies' internal control over financial reporting (www.ic.coso.org). For example, such companies may strengthen internal controls by broadening the pool of audit committee members, using controls built into accounting software, leveraging management monitoring and outsourcing some activities.

The ED does not replace or modify the COSO framework. Rather, it defines, describes and illustrates the adoption of 26 fundamental principles associated with the five key components of internal control: control environment, risk assessment, control activities, information and communication, and monitoring. Comments are due December 31, 2005.