Sarbanes Oxley Section 404: The Basics On Financial Internal Control Reporting
Sarbanes Oxley Section 404: The basics on financial internal control reporting
SARBOX (SOX) section 404 requires all publicly-traded companies doing business in the United States to report on the internal control procedures used during reporting and auditing of ALL financial activity. In short, SOX 404 is a BIG deal; esp. in light of recent, internal-control failures. Failures that played a large part in the tidal wave of financial scandals that battered corporate America in the late 1990s and early 2000s, (i.e., Enron and WorldCom).
Sarbanes Oxley Section 404 (even though rather small in size) is one of [if not the] most contentious sections lurking within the depths of the legislation. This is due to the fact that it requires an incredible amount of time, expense, and overall stress on corporations required to comply, primarily in the IT and accounting divisions of a corporation.
The goal of this article is to briefly outline the specifics of SARBOX section 404 and quickly summarize its effects. SARBOX Section 404: The Basics Restated simply, SARBOX section 404 asserts corporate management to develop and maintain sufficient procedures relating to the internal control of financial reporting; as well as assessing their efficacy. Independent auditors (contracted by the corporation) are responsible for assessing and verifying corporate management’s financial-reporting procedures and providing subsequent reports. Auditors must also provide reasonable assurance that ALL financial reporting is reliable and transparent. The following information should be included in the auditors final report:
· All corporate assets [in relative completeness] are to be accurately and justly shown.
· Affirmation that all corporate financial activity has been done so under the direct authorization of corporate management and verified by auditors.
· Provide moderate certainty that an adequate level of checks are in place safeguarding against any unauthorized use of company assets. The above-mentioned roles of management and the assigned auditors are critical to successful Sarbanes Oxley Section 404 compliance. Their effects on corporations vary according to how well the additional tasks have been managed. As a whole, however, once procedures and management systems are in place, SARBOX section 404 compliance no longer becomes as great a weight on corporate resources. Assuming the above requirements have been met, corporate investors should feel more at ease in knowing their money is being well-stewarded by the corporations they entrust it to; which in a nutshell is one of the overall goals of SARBOX: That of public trust regained. In Conclusion: Without question, The Sarbanes Oxley Act has transformed the landscape of how publicly-held corporations manage and report their financial activities and disclosures. SARBOX is NOT an option. It is law. Law targeted toward bringing financial responsibility, accountability, and integrity back to corporate America.
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