Risk & Compliance

Terex Will Restate after 404 Assessment

Compliance with Section 404 of Sarbanes-Oxley may lead to many more restatements.
Stephen TaubJanuary 17, 2005

We’ll probably see many more such announcements in coming months as companies work toward compliance with Section 404 of the Sarbanes-Oxley Act.

Diversified manufacturer Terex Corp. announced that it will restate its financials for 2001 through 2003 to correct certain errors. The company implied in a press release that it discovered these errors while conducting its review of its internal controls over financial reporting to meet the requirements of Section 404.

In October, Terex began to examine its intercompany transactions to reconcile imbalances in certain accounts. Although the company stated that the review is ongoing and that it hasn’t determined all adjustments that may be needed or in what periods the correcting entries will be made, Terex added that it believes most adjustments relate to periods in 2002 and earlier. It also does not believe the adjustments will be material.

Terex said that as part of its review, it determined that a material weakness existed in its internal controls over financial reporting as they relate to the recording of certain intercompany transactions.

To comply with Section 404, Terex added, “a new financial reporting system was put in place in the later part of 2003 allowing for a more detailed and thorough review of accounts on a timely basis through analytical report writing functions, as well as automated back office functions.” The company also noted that it revised its internal controls to require “monthly activity balancing and the requirement that any reconciling item that is not resolved within a specified period of time be escalated for prompt resolution.”

Terex also said it has changed its reporting relationship for operating financial personnel so that they now report directly to the corporate financial group, and it will provide enhanced training for all financial personnel. It also intends to add more people to the financial organization as necessary, simplify its reporting structure, and migrate to a more-common information technology platform.