One of the most important and highly scrutinized components of the Sarbanes-Oxley Act is Section 404. Section 404 created disclosure-based incentives in order to encourage firms to spend money on internal control systems for financial reporting. This section is arguably the most controversial section of the act.
What is Sarbanes-Oxley Act Section 404?
SOX Section 404 (Sarbanes-Oxley Act Section 404) mandates that all publicly-traded companies must establish internal controls and procedures for financial reporting and must document, test and maintain those controls and procedures to ensure their effectiveness.
What is the major drawback of the SOX Act?
The major drawback of the act is the cost of implementation, which its critics say have made American businesses less competitive and even caused some firms to move their headquarters from New York to London, where regulation is less stringent.
What triggers Sarbanes-Oxley?
The Sarbanes-Oxley (SOX) Act of 2002 came in response to highly publicized corporate financial scandals earlier that decade. The act created strict new rules for accountants, auditors, and corporate officers and imposed more stringent recordkeeping requirements.
What are the requirements of Section 404 of the Sarbanes Oxley Act?
Section 404 requires that companies document, test and assess procedures for monitoring their internal systems, that managers file a special “management report”, in which they evaluate the firm’s internal control system on financial reporting, and that the outside auditor attest to the management’s assessment of the companies’ controls.
Why was the Sarbanes Oxley Act of 2002 controversial?
The Sarbanes-Oxley Act of 2002 (Pub.L. 107-204, 116 Stat. It has become contrversial because it is believed that SOX was an unnecessary and costly government intrusion into corporate management that places U.S. corporations at a competitive disadvantage with foreign firms, driving businesses out of the United States.
What do you need to know about Sox Section 404?
SOX Section 404: Management Assessment of Internal Controls. Section 404 is the most complicated, most contested, and most expensive to implement of all the Sarbanes Oxley Act sections for compliance. All annual financial reports must include an Internal Control Report stating that management is responsible for an “adequate” internal control…
Why was Section 404 ( b ) put in place?
The AICPA has consistently urged implementation of Section 404 (b) for all publicly held companies. Section 404 (b) has led to improved financial reporting and greater transparency. The AICPA believes that all investors in public companies should have equal benefit of the same protections.
