The Sarbanes-Oxley Act
1. Introduction
Internal control is a very important internal governance mechanism for the modern enterprises, which is responsible to correct the error and prevent fraud, and ensure the healthy development of the company. The bankruptcy of Enron occurred in 2001 has made the U.S. and global focus on internal control. So the internal control evolving from a spontaneous governance mechanism to a system construction is a regulatory power driven by government. As important measures of the government regulation, mandatory disclosure of internal control information is to be legalized, has become an important part of the construction of corporate transparency. The typical example is the Sarbanes-Oxley Act of 2002, as well as Section 302, 404, mandatory …show more content…
The U.S. Congress required it to adopt rules to implement Section 404 of the Sarbanes-Oxley Act. Based on these rules, senior management and auditors must disclose material weaknesses. If there are any deficiencies in the financial report, management should not conclude that the company’s internal control is effective. In fact, the Foreign Corrupt Practices Act of 1977 (FCPA) provided the first statutory regulation of internal controls of SEC registrants, requiring that registrants maintain cost-effective systems of internal accounting control over transactions and assets (Weili Ge and Sarah McVay, 2005). The Sarbanes-Oxley Act does not substantially alter requirements for maintaining internal control expressed in the FCPA. Instead, Sarbanes-Oxley Act Section 302 increases disclosure requirements related to the effectiveness of internal …show more content…
A significant deficiency exists if one or more control deficiencies exist that is less severe than a material weakness, but important enough to merit attention by those responsible for oversight of the company’s financial reporting. A material weakness exists if a significant deficiency, by itself, or in combination with other significant deficiencies, results in a reasonable possibility that internal control will not prevent or detect material financial statement misstatements on a timely basis. To determine if a significant internal control deficiency or deficiencies are a material weakness, they must be evaluated along two dimensions: likelihood and
Internal control is a very important internal governance mechanism for the modern enterprises, which is responsible to correct the error and prevent fraud, and ensure the healthy development of the company. The bankruptcy of Enron occurred in 2001 has made the U.S. and global focus on internal control. So the internal control evolving from a spontaneous governance mechanism to a system construction is a regulatory power driven by government. As important measures of the government regulation, mandatory disclosure of internal control information is to be legalized, has become an important part of the construction of corporate transparency. The typical example is the Sarbanes-Oxley Act of 2002, as well as Section 302, 404, mandatory …show more content…
The U.S. Congress required it to adopt rules to implement Section 404 of the Sarbanes-Oxley Act. Based on these rules, senior management and auditors must disclose material weaknesses. If there are any deficiencies in the financial report, management should not conclude that the company’s internal control is effective. In fact, the Foreign Corrupt Practices Act of 1977 (FCPA) provided the first statutory regulation of internal controls of SEC registrants, requiring that registrants maintain cost-effective systems of internal accounting control over transactions and assets (Weili Ge and Sarah McVay, 2005). The Sarbanes-Oxley Act does not substantially alter requirements for maintaining internal control expressed in the FCPA. Instead, Sarbanes-Oxley Act Section 302 increases disclosure requirements related to the effectiveness of internal …show more content…
A significant deficiency exists if one or more control deficiencies exist that is less severe than a material weakness, but important enough to merit attention by those responsible for oversight of the company’s financial reporting. A material weakness exists if a significant deficiency, by itself, or in combination with other significant deficiencies, results in a reasonable possibility that internal control will not prevent or detect material financial statement misstatements on a timely basis. To determine if a significant internal control deficiency or deficiencies are a material weakness, they must be evaluated along two dimensions: likelihood and