ICI Supports Proposal Targeting Corporate Financial Reporting Standards

Washington, DC, February 26, 2007 - ICI expressed support for a Public Company Accounting Oversight Board proposal regarding audits of internal control over financial reporting, noting that it seeks to retain the benefits associated with audits of internal control over financial reporting while reducing related costs

Background
On December 19, 2006, the PCAOB proposed an auditing standard that aims to focus the audit on the matters most important to internal control; eliminate unnecessary procedures; scale the audit for smaller companies; and simplify requirements by reducing detail and specificity.

Strong internal control over financial reporting has long been recognized to be important to the reliability of financial reporting. Companies have been required to have such controls since the passage of the Foreign Corrupt Practices Act in 1977. The requirement for issuers to assess, and auditors to report on, internal controls was mandated by Section 404 of the Sarbanes-Oxley Act of 2002. In June of 2003, the Securities and Exchange Commission implemented Section 404 by adopting rules requiring issuers to include in their annual reports an assessment of the company's internal control over financial reporting as well as an auditor's report on that assessment.

The PCAOB proposal is intended to maintain the benefits associated with an audit of internal control over financial reporting while reducing associated costs. In particular, it focuses the audit on the matters most important to internal control; eliminates unnecessary procedures; scales the audit for smaller companies; and simplifies requirements by reducing detail and specificity.

ICI Position
As investors in securities, funds have a significant interest in ensuring the integrity of corporate financial reporting on which their investment decisions are based. In a February letter, ICI pointed out that shareholders ultimately bear costs associated with audits of internal control over financial reporting, and strongly supported the PCAOB's efforts to improve the efficiency of internal control audits without sacrificing their effectiveness. Further, we urge the PCAOB to monitor implementation of the proposal to ensure that the anticipated reduction in unnecessary effort and cost is realized.

ICI also urged the PCAOB to state more strongly that restatement of previously issued financial statements does not necessarily constitute a material weakness in internal control over financial reporting. Furthermore, ICI asked for clarification on a portion of the proposal that delineates the circumstances that should be regarded as a strong indicator of a material weakness.

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