This memo summarizes the customized models used to prioritize financial statement elements (FSE) and processes for Sarbanes-Oxley (SOX) Section 404 compliance. The prioritization of these items helps define the extent of a company’s process-level documentation efforts.
In this sample, process prioritization began with a focus on the financial statements. Each FSE from the balance sheet, income statement, and other financial reporting documents and information is ranked according to established criteria. The FSEs are prioritized using a “high,” “medium” and “low” scale. Each FSE’s priority is calculated based on four different ranking criteria: materiality, volatility of recorded balance, complexity of calculation and subjectivity in determining the balance. Each FSE receives an overall ranking both subjectively and via a weighted-average calculation.