Material Weaknesses in Internal Control in Relation to Derivatives and Hedge Accounting

We examined 173 internal control reports containing material weaknesses in internal control over financial reporting related to SFAS133. We found that a majority of the companies (122) did not properly comply with the SFAS 133 accounting rules, followed by inadequate monitoring and review (72), insufficient resources (61), incomplete documentation for hedge effectiveness (49), and inaccurate valuation (32). We also found that firms with material weaknesses in internal control related to SFAS 133 mostly fixed their internal control problems by restating financial statements (117), followed by review expansion (64), process improvement (63), training expansion (60), consultants hiring/retention (53), staffing increase (52), new process (46), and policy improvement (32). Our review and discussion of the material weaknesses in internal control related to SFAS 133 disclosed in the internal control reports should benefit external auditors, management, and regulators. (C) 2018 Wiley Periodicals, Inc.