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Ask FERF (financial executives research foundation) about ... private company compliance with section 404.

In the article "Defining Moment for Good Governance," on page 48, Financial Executives Research Foundation (FERF) spoke with Constance E. Lund, senior vice president of Corporate Finance at American United Life Insurance Co. (AUL) about Sarbanes-Oxley compliance for private companies. In the following, Lund provides numerous lists that document the process her company is using to assure its internal controls.

Much of AUL's work focused on compliance with Sarbanes-Oxley Section 404, Management assessment of internal controls, to which it initially chose to be in compliance by the end of 2004. Coincidentally, this date became the revised deadline for many public companies.

The company identified these steps in its 404 Implementation Assessment:

* Inventory all financial classes of transactions/accounting processes by business unit (premiums, claims, etc.)

* Determine significance of transactions/processes based on materiality and risk

* Determine objectives for all significant cycles, accounting processes (completeness, accuracy, valuation, presentation, existence)

* Evaluate design of controls and test controls' operating effectiveness to achieve objectives

* Determine and correct gaps

* Test remediated areas

* Institute an ongoing monitoring program

* Provide report on internal controls

AUL also conducted a pilot 404 project that achieved the following:

* Completed documentation of process and controls

* Established preventive measures, improved monitoring and accountability

* Increased understanding and awareness of controls and control points by all individuals in the unit

* Boosted morale and provided a sense of challenge and accomplishment

* Promoted ownership of business processes

Before deciding on a consulting firm to assist in implementation, AUL used selection criteria to identify vendor advantages and disadvantages and rated vendors that include:

Degree of independence

Perception of audit committee

Brings a fresh perspective

Expertise and cost

Company/industry knowledge

Approach and scope

Flexibility to work with people

Ability to work with external auditor

Commitment of resources within the company's implementation timeframe

Technology and ongoing capabilities

After identifying a consultant, a project team was organized. The team included representatives from the consulting company, project sponsors from corporate management and representatives from operations, IT, financial reporting and the external audit firm. The timetable was initially established over six quarters.

A comprehensive Project Charter, developed to assist in implementation, was organized as follows:


Project Scope Statement

Project Objectives

Excluded from Scope


Project Timeline

Project Budget

Cost/Benefit Analysis

Project Risk

High Level Risks


Project Assumptions and Constraints

Project Assumptions

Project Constraints

Key Project Participants

Project Structure

Project Charter Attachments

Project Approach--Diagram

Materiality Criteria

Roles & Responsibilities

Project Contacts

Project Initiation Document (PID)

Acceptance of Project Completion

Both private and public companies can further leverage the internal control infrastructure to generate greater business success. Benefits can include:

Error prevention

Timely detection of issues leading to less rework

Improved flow of information, permitting better business decisions

Better resource management

Streamlined operations

Reliable financial reporting

FERF publications provide additional information on compliance with Section 404 and other aspects of Sarbanes-Oxley. FERF products are available on the Web at store. In addition, see FEI's Web site for Sarbanes-Oxley-related resources at

Cheryl de Mesa Graziano, CPA ( is Director of Research for Financial Executives Research Foundation (FERF).
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Title Annotation:resources
Author:de Mesa Graziano, Cheryl
Publication:Financial Executive
Date:Nov 1, 2003
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