Sarbanes-Oxley now clearly places responsibility on corporate executives for the content of a company's financial reports issued to investors. Executives must certify that they have reviewed the reports and that the reports contain no materially false statements or omissions. Financial reports must not be misleading; they must impart a clear and accurate portrayal of the company's financial condition. Although executives don’t need to draft the reports, they must implement and monitor internal controls that affect their preparation.…
This section discusses how Section 404 of the SOX is likely to affect the issue of internal controls. Section 404 was intended to enhance the quality of reporting and increase investor confidence (Office of Economic Analysis, 2009). Section 404 of the SOX, entitled…
The Act holds a company 's executive officers and financial officers responsible for the accuracy of the company’s financial information. Also it requires companies to report clear financial information and ensure their financial records are valid. Moreover, the Act gives the external auditor more access to the financial data and protects corporate whistle blowers (Magloff, 2013). Any false or misleading information in the company’s financial statements is considered as a crime. Public companies are required to comply with the Act. The Section 404 of the Sarbanes-Oxley Act creates additional costs for a company for audits and internal control software or plans. Therefore, the Act results a barrier for foreign companies to operate within the United States and some small-sized and medium-sized companies consider not to go public (Slaughter,…
governmental oversight of accounting fraud and abuse has drastically improved over the years. In the past, many companies used the flexibly in accounting framework to alter financial statements. This was done to present a seamless depiction of the statements to their investors. There is a theory that not enough accountability has existed in government. Once governmental accountability improves, then companies will be more likely to deter from waste, fraud and abuse (acfea, 2009). The Security and Exchange Commission (SEC) eventually introduced detailed changes in the accounting framework to restrict fraud and abuse. The government now pays more attention to what is going on in the financial arena and is ultimately responsible for the oversight of accounting fraud. The implementation of internal controls helps to reduce the possibility of fraud and it also insures that the company complies with the SOX rules and regulations. If our company becomes a government supplier, once the bid is accepted, it will come under scrutiny and will be required to comply with the Sarbanes Oxley Act (acfe,…
In the role of internal control in complying with (SOX) federal regulations have been revised to constrict responsibility dealing directly with directors, officers, and auditors. The revision obligates companies that are publicly traded to incorporate three precise reports within their annual financial reports to include the following:…
References: United States Securities and Exchange Commission (September 2009). Study of the Sarbanes-Oxley Act of 2002 Section 404; Internal Control over Financial Reporting Requirements. Retrieved from http://www.sec.gov/news/studies/2009/sox-404_study.pdf…
Rouse, M. (2008, January). Sox Section 404 (Sarbanes-Oxley Act Section 404). Retrieved June 6, 2015 from http://searchfinancialsecurity.techtarget.com/definition/SOX-Section-404…
Zhang Ivy Xiying, ‘Economic Consequences of the Sarbanes Act.’ William E. Simon Graduate School of Business Administration, February 2005, pp 1-58. Retrieved on March 31, 2011 from http://w4.stern.nyu.edu/accounting/docs/speaker_papers/spring2005/Zhang_Ivy_Economic_Consequences_of_S_O.pdf…
It is in Title IV that the notorious Section 404 is located. Titled ‘Management Assessment of Internal Controls, Section 404 is what the end user of SOX, that is, the corporation itself and its CPA firm, has the most difficulty due to the compliance standards that essentially add the marginal costs to the firm. According to a survey by Korn/Ferry International, Sarbanes–Oxley cost Fortune 500 companies an average of $5.1 million in compliance expenses in 2004, while a study by the law firm of Foley and Lardner found the Act increased costs associated with being a publicly held company by 130 percent." Benefit- Companies are becoming more transparent. SOX is good for business for understanding how the business operates and for the consumer. greater awareness and ownership of business process owners [managers of functional departments]. Also, auditing committees are more interested in your ‘voice’ – taking the audit more seriously today – audit committees are much more engaged and a more diligent to their fiduciary requirements – partners and staff are more engaged and the clients are more interested … hence, good for confidence to be…
Garner, D. E., McKee, D. L., & McKee, Y. (2008). Accounting and the Global Economy After Sarbanes-Oxley. Armonk, N.Y.: M.E. Sharpe.…
The goals of the Sarbanes-Oxley Act are expansive, including the improvement of the quality of audits in an attempt to eliminate fraud in order to protect the public’s interest, as well as for the protection of the investors (Donaldson, 2003). Prior to the implementation of SOX auditors were self-regulated with consumers reliant on their honesty and integrity. However, the auditing profession failed at self-regulation, thus necessitating the implementation of a security measure that would protect the investors and the public and restore confidence in the accounting profession. SOX was the response by the federal government, augmenting the role of auditors in enforcing federal securities laws against fraud and theft within public companies. (Coates, 2007) Additionally, SOX emphasizes executive responsibility and the improvement of disclosures and financial reporting (Donaldson, 2003).…
They should follow GAAP rules correctly. Furthermore, the SOX law also needs management to organize an internal control statement with each and every fiscal statement. This will make sure that not just the fiscal reports are organized correctly but sufficient safeguards are in place for the security of fiscal data. To some extent, the SOX Act has enhanced investors trust in the parameters of fiscal reporting. Moving forward, Section 409 (material event revealing) needs all publicly traded organizations to reveal all information related to material modifications in their…
It has been a decade after Sarbanes-Oxley Act of 2002, (SOX) was passed; the traditional internal audits were replaced with the required internal controls under Section 404. As the new internal controls have become routine, corporations are now considering how to better the skills of their internal audit team. SOX has increased criminal penalties and imposed maximum terms in prison for those individuals involved in various kinds of financial fraud.…
The U.S. Congress passed Sarbanes-Oxley Act in 2002 in order to reveal some financial information, define clear responsibilities of corporate boards and audit committee, and ensure their independence. SOX was formed after several major scandals in accounting field, such as WorldCom and Global Crossing. This memorandum is intended to explain the major changes in accounting practices after implementation of the Sarbanes-Oxley Act in 2002 and how ethics affected the formation of the act.…
A company’s financial health is the deciding factor of future growth. As humans, we rely on health checkups to improve and maintain our health. Same thing goes for businesses. Without maintaining proper financial health that company will not be around long afterwards. I want to begin by presenting and comparing Ford Motor Company’s income statement, balance sheet, and cash flow to determine the financial health of the company versus two of the company’s current competitors.…