12% of cos. below SOX standard

Better than one in every eight U.S. corporations that have undergone the more rigorous audits mandated by the Sarbanes-Oxley Act during the past year have been flagged for ineffective internal controls over their financial reporting, officials at the Public Company Accounting Oversight Board disclosed during a recent meeting with the organization's Standing Advisory Group.

The high rate of "material weaknesses" cited by auditors is likely to climb even higher during the coming year, as thousands of smaller corporations with less sophisticated internal control systems become subject to the new SOX financial reporting rules.

Much of the teeth-gnashing has involved SOX Section 404, which requires top managers of publicly traded companies to report on the effectiveness of the corporation's internal financial controls, and obliges auditors to attest to the accuracy of management's assessment.

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