As most companies know by now, "disclosure controls and procedures" involve gathering, analyzing and ultimately communicating information that must be disclosed in Exchange Act reports.

The SEC has provided flexibility for companies to develop processes that are consistent with their business and culture, but senior executives ultimately have to assess the effectiveness of their disclosure controls.

Compliance Week has found that, increasingly, companies are adding broad disclaimers to their statements of effectiveness.

According to T. Clark Fitzgerald III, who chairs the Securities & Corporate Governance practice at Arnall Golden Gregory, the explanatory language is being added to remind readers that a certification is not a guarantee. "Independent accountants use similar explanatory language in the reports they issue when they complete an audit," says Fitzgerald.

Whether the language might impact liability has yet to be seen. Says Fitzgerald, "It's not clear to what extent general language ... actually lessens liability but it probably makes CEOs and CFOs more comfortable that their certifications are accompanied by explanations of the inherent limitations of the systems."

Compliance Week reviewed cautionary language utilized by dozens of companies.

In most cases, the statements of effectiveness were prefaced by a disclaimer paragraph that outlined the "limitations on effectiveness of controls." The limitations often mentioned a variety of potential problems, from resource constraints to human judgment.

The most common phrasing was this one-sentence statement, which usually followed the statement of effectiveness:

"Notwithstanding the foregoing, there can be no assurance that the Company’s disclosure controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to disclose material information otherwise required to be set forth in the Company’s periodic reports."

Other common examples are listed below, and — as usual — we've included links to the actual filings with appropriate page numbers so you can review these and other details. Research was conducted with the assistance of 10kwizard.com.

Company

FilingDate

Statement of Limitation; Cautionary Language

Filing

Wet Seal

10-Q, 6/10/03

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. Moreover, the design of any system of controls is also based in part upon certain assumptions about the likelihood of future events.

Download Filing (Page 23)

Metal Management

10-K, 6/3/03

Limitations on the Effectiveness of Controls. Our management, including

our CEO and CFO, does not expect that our disclosure controls or our internal

controls will prevent all error and all fraud. A control system, no matter how

well conceived and operated, can provide only reasonable, not absolute,

assurance that the objectives of the control system are met. Further, the design

of a control system must reflect the fact that there are resource constraints,

and the benefits of controls must be considered relative to their costs. Because

of the inherent limitations in all control systems, no evaluation of controls

can provide absolute assurance that all control issues and instances of fraud,

if any, within the Company have been detected. These inherent limitations

include the realities that judgments in decision-making can be faulty, and that

breakdowns can occur because of simple error or mistake. Additionally, controls

can be circumvented by the individual acts of some persons, by collusion of two

or more people, or by management override of the control. The design of any

system of controls also is based in part upon certain assumptions about the

likelihood of future events, and there can be no assurance that any design will

succeed in achieving its stated goals under all potential future conditions;

over time, controls may become inadequate because of changes in conditions, or

the degree of compliance with the policies or procedures may deteriorate.

Because of the inherent limitations in a cost-effective control system,

misstatements due to error or fraud may occur and not be detected.

Download Filing (Page 40)

Stena AB

20-F, 5/30/03

Limitations on Effectiveness of Controls. Our Chief Executive Officer

and Chief Financial Officer do not expect that our disclosure controls or

internal controls will prevent all error and all fraud. A control system, no

matter how well conceived and operated, can provide only reasonable, not

absolute, assurance that the objectives of the system are met. Further, the

design of a control system must reflect the fact that there are resource

constraints, and the benefits of controls must be considered relative to their

costs. Because of the inherent limitations in all control systems, no evaluation

of controls can provide absolute assurance that all control issues and instances

of fraud, if any, within the company have been detected. These inherent

limitations include the realities that judgments in decision-making can be

faulty, and that breakdowns can occur because of simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some

persons, by collusion of two or more people, or by management override of the

control. The design of any system of controls also is based partly on certain

assumptions about the likelihood of future events, and there can be no assurance

that any design will succeed in achieving its stated goals under all potential

future conditions.

Download Filing (Page 87)

Tarrant Apparel Group

10-Q, 5/16/03

Disclosure controls and procedures, no matter how well designed and

implemented, can provide only reasonable assurance of achieving an entity's

disclosure objectives. The likelihood of achieving such objectives is affected

by limitations inherent in disclosure controls and procedures. These include the

fact that human judgment in decision-making can be faulty and that breakdowns in

internal control can occur because of human failures such as simple errors or

mistakes or intentional circumvention of the established process.

Download Filing (Page 27)

Valley Financial Corp.

10QSB, 5/15/03

The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goal under every potential condition, regardless of how remote. In addition, the operation of any system of controls and procedures is dependent upon the employees responsible for executing it. While we have evaluated the operation of our disclosure controls and procedures and found them effective, there can be no assurance that they will succeed in every instance to achieve their objective.

Download Filing (Page 25)

NetRatings

10-Q, 5/14/03

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 90 days of the filing date of this report. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective. Notwithstanding the foregoing, there can be no assurance that our disclosure controls and procedures will detect or uncover all failures within our company to disclose material information otherwise required to be set forth in our periodic reports.

Download Filing (Page 30)

Credit Suisse First Boston

10-Q, 5/13/03

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Download Filing (Page 47

Medquist

10-Q, 5/13/03

The Company's management, including the CEO and CFO, does not expect

that our Disclosure Controls will prevent all error and all fraud. A control

system, no matter how well conceived and operated, can provide only reasonable,

not absolute, assurance that the objectives of the control system are met.

Further, the design of a control system must reflect the fact that there are

resource constraints, and the benefits of controls must be considered relative

to their costs. Because of the inherent limitations in all control systems, no

evaluation of controls can provide absolute assurance that all control issues

and instances of fraud, if any, within the Company have been detected. These

inherent limitations include the realities that judgments in decision-making can

be faulty, and that breakdowns can occur because of simple error or mistake. The

design of any system of controls also is based in part upon certain assumptions

about the likelihood of future events, and there can be no assurance that any

design will succeed in achieving its stated goals under all potential future

conditions.

Download Filing (Page 18)

Enterasys

10-Q, 5/09/03

Notwithstanding management’s conclusions, the effectiveness of a system of disclosure controls and procedures is subject to certain inherent limitations, including cost limitations, judgments used in decision making, assumptions regarding the likelihood of future events, soundness of internal controls, and fraud. Due to such inherent limitations, there can be no assurance that any system of disclosure controls and procedures will be successful in preventing all errors or fraud, or in making all material information known in a timely manner to the appropriate levels of management.(Note: Enterasys did report certain deficiencies in their internal controls in this 10-Q)

Download Filing (Page 33)

Allstate Life Insurance

10-K, 3/31/03

The design of any system of controls and procedures, including internal

controls and disclosure controls and procedures, is based in part upon

assumptions about the likelihood of future events. Therefore, there can be

no assurance that any design will succeed in achieving its stated goals

under all potential future conditions, regardless of how remote.

Download Filing (Page 63)

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