Section 404 Reporting on Internal Control: Our Early Experience

Larger US public companies with calendar year ends have recently filed, for the first time, management and auditor reports on internal control as required by Section 404 of the Sarbanes-Oxley Act of 2002 (404 reports). This Special Comment summarizes our experience to date in evaluating the credit implications of those reports.

Fewer companies are reporting control problems than we had expected. Overall, about 5 percent of the companies we rate are reporting material weaknesses compared to the 10 to 20 percent of public companies that market speculation suggested would do so.

See full Moody's Report, in pdf format.