Section 404 Sarbanes Oxley
The Limitations of Section 404 of the Sarbanes-Oxley Act
Darren Abraham MSAF 670
University of Maryland University College
The Sarbanes-Oxley Act (SOX) is a legislation enacted in 2002 under the sponsorship of U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). The law introduced increased government oversight for publicly held companies. It also imposes additional management responsibilities and corporate operating costs on companies trading under SEC regulations. Sarbanes-Oxley was enacted in direct response to a number of corporate accounting scandals, including those of Enron, Tyco International, and WorldCom.
As a result of the SOX Act, Corporate Managers (CEOs, CFOs) are required to: 1) issue Internal Control Report beginning with the 2004 company annual report; 2) certify quarterly to the effectiveness of internal controls over financial reporting; 3) issue two opinions on internal controls on the annual report a) management’s assessment process and b) effectiveness of controls. Moreover, Section 404 mandated company reporting on internal control by management and independent auditors. What is the reasoning behind the decision? In fact, according to the Authors, SEC believes that First, internal control was not conceptually designed to be a panacea for corporate ills. Traditionally, in the audit literature, the concept of internal control is narrow in scope and procedural in application. It is narrow because the scope of internal control is largely confined to accounting systems to support the accounting process. It is procedural because auditors tend to follow a set of prescribed mechanical procedures to determine whether internal controls surrounding and embedded in accounting systems are reliable. In general, auditors will not concern themselves with controls beyond the accounting process. This is where the problem of the traditional internal control concept lies.
Second, the Foreign Corrupt
Darren Abraham MSAF 670
University of Maryland University College
The Sarbanes-Oxley Act (SOX) is a legislation enacted in 2002 under the sponsorship of U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). The law introduced increased government oversight for publicly held companies. It also imposes additional management responsibilities and corporate operating costs on companies trading under SEC regulations. Sarbanes-Oxley was enacted in direct response to a number of corporate accounting scandals, including those of Enron, Tyco International, and WorldCom.
As a result of the SOX Act, Corporate Managers (CEOs, CFOs) are required to: 1) issue Internal Control Report beginning with the 2004 company annual report; 2) certify quarterly to the effectiveness of internal controls over financial reporting; 3) issue two opinions on internal controls on the annual report a) management’s assessment process and b) effectiveness of controls. Moreover, Section 404 mandated company reporting on internal control by management and independent auditors. What is the reasoning behind the decision? In fact, according to the Authors, SEC believes that First, internal control was not conceptually designed to be a panacea for corporate ills. Traditionally, in the audit literature, the concept of internal control is narrow in scope and procedural in application. It is narrow because the scope of internal control is largely confined to accounting systems to support the accounting process. It is procedural because auditors tend to follow a set of prescribed mechanical procedures to determine whether internal controls surrounding and embedded in accounting systems are reliable. In general, auditors will not concern themselves with controls beyond the accounting process. This is where the problem of the traditional internal control concept lies.
Second, the Foreign Corrupt
References: Achieve Sarbanes-Oxley 404 Compliance. (2010). Controller 's Report, 2010(8), 10-11. Retrieved from: EBSCOhost, February 6, 2011 Lin, H., & Wu, F. H. (2006). Limitations of Section 404 of the Sarbanes-Oxley Act. CPA Journal, 76(3), 48-53. Retrieved from: EBSCOhost, February 6, 2011 The Sarbanes-Oxley Act. (2006). A Guide to the Sarbanes Oxley act. Retrieved (2011, March 13) from http://www.soxlaw.com/index.htm