Sarbanes-Oxley SOX 404 – What would cause internal controls to be ineffective?

  • Controls are ineffective if one material weakness is identified by management and/or by Accounting Company as of the end of the fiscal year
  • Controls may be ineffective if a number of significant control deficiencies exist which in aggregate could lead to a material misstatement of financial statements
  • Examples of items potentially leading to a material weakness:
    • Inadequate documentation to support management’s assessment
    • Inadequate internal controls over financial reporting
  • The decision on what items are a material weaknesses will be determined by Company’s Disclosure Committee; Management; Accounting Firm; and the Audit Committee

sarbanes oxley legislative rulings

Sarbanes-Oxley Section 404

What does Sarbanes Oxley Section 404 Address?

Section 404 is a subset of Section 302 and addresses Financial Statement Reporting controls

Under 404, CEO and CFO must:

  • Issue Internal Control Report in 2004 Company Annual Report
  • Certify Quarterly as to effectiveness of Internal Controls over Financial Reporting beginning 2005The Accounting Firm must:
  • Issue two opinions on internal controls over financial reporting in Company 2004 Annual Report: (1) Management’s assessment process and (2) effectiveness of controls

Management’s Sox 404 Responsibilities

  • Effective Year End 2004 CEO & CFO must include a report in the Annual Report indicating:
    • They have designed and maintained a system of internal controls for financial reporting using a recognized internal control framework
    • They have tested internal controls and found them to be designed and operating effectively
      The Auditor has evaluated the design and effectiveness of the controls and found them to be operating effectively
  • Effective Q1 2005, CEO and CFO must certify quarterly that there are no significant changes to internal controls for financial reporting using a recognized internal control framework.

External Auditor’s Sox 404 Responsibilities

The Accounting Firm (External Auditor) must render two opinions:

  • Management’s Assessment Process
  • Effectiveness of the company’s internal controls over financial reporting

The Accounting Firm must comply with Public Company Accounting Oversight Board (PCAOB) Audit Standards

In order to render opinions, The Accounting Firm may:

  • Review our process documentation
  • Perform walk thru’s to validate controls are designed effectively
  • Review and re-perform a sample of test of controls
  • Perform additional independent tests
  • Evaluate controls to ascertain if errors of importance could occur in the financial statements or if fraud could occur

Sarbanes-Oxley Section 906

What does Sarbanes Oxley Section 906 Address?

Section 906 addresses criminal penalties for certifying a misleading or fraudulent report

Under Sarbanes Oxley 906 penalties are:

  • Up to $5 Million in fines
  • Up to 20 years in jail

Other sections of SOX provide additional authority to regulatory bodies and courts relating to fines or imprisonment for matters involving corporate fraud

What is Sarbanes Oxley Section 302?

What does Sarbanes Oxley Section 302 Address?

Sarbanes Oxley Section 302 addresses all financial information disclosed to investors including MD&A in the 10Q and 10K.

Under SOX Section 302, CEO and CFO must:

  • Certify quarter and annual financial statements and other published financial information are fairly presented; no untrue facts or omissions
  • Establish and maintain disclosure controls and procedures as of period end and for disclosing material changes in internal control
  • Disclose to auditors and Audit Committee if control deficiencies, material weaknesses, or fraud exist

Sarbanes-Oxley (SOX) Training

Sarbanes Oxley Section 404 Transaction Assessment Training

Who is targeted for this Sarbanes Oxley training?

Individuals who will conduct Sox 404 internal control assessments

Sector / Corporate Function subject matter experts

  • Former Financial or Systems Audit Experience
  • Public Accounting experience
  • Internal Audit experience
  • IT General Controls experience

What are our objectives?

  • Provide Overview of Sarbanes Oxley Legislation and update on recently published S-Ox 404 Audit Standard
  • Communicate Our Company Plan to Address Sarbanes Oxley, Section 404
  • Provide awareness training in Assessing Key Process Controls using the Sox 404 Audit Standard

Sarbanes-Oxley (SOX) and Corporate Governance Overview

What is the Sarbanes Oxley Act?

  • US law passed 2002 to strengthen Corporate governance and restore investor confidence.
  • Sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley.
  • Passed in response to a number of major corporate and accounting scandals involving prominent companies in the United States.
  • 11 sections ranging from additional Corporate Board responsibilities to criminal penalties.

What does Sarbanes Oxley Address?

  • Sarbanes Oxley Act Establishes new standards for Corporate Boards and Audit Committees
  • Sarbanes Oxley Act Establishes new accountability standards and criminal penalties for Corporate Management
  • Sarbanes Oxley Act Establishes new independence standards for External Auditors
  • Sarbanes Oxley Act Establishes a Public Company Accounting Oversight Board (PCAOB) under the Security and Exchange Commission (SEC) to oversee public accounting firms and issue accounting standards

Sarbanes Oxley Overview Map

Sarbanes Oxley (SOX) Compliance Tutorial

Sarbanes Oxley (SOX) Compliance Information – What is the Sarbox Act or Sarbanes-Oxley Act ?

  • Sarbanes-Oxley is a US law passed in 2002 to strengthen Corporate governance and restore investor confidence. Act was sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley.
  • Sarbanes-Oxley law passed in response to a number of major corporate and accounting scandals involving prominent companies in the United States. These scandals resulted in a loss of public trust in accounting and reporting practices.
  • Legislation is wide ranging and establishes new or enhanced standards for all US public company Boards, Management, and public accounting firms.
  • Sarbanes-Oxley  law contains 11 titles, or sections, ranging from additional Corporate Board responsibilities to criminal penalties. Requires Security and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law.

What does Sarbanes Oxley Address?

  • Establishes new standards for Corporate Boards and Audit Committees.
  • Establishes new accountability standards and criminal penalties for Corporate Management.
  • Establishes new independence standards for External Auditors.
  • Establishes a Public Company Accounting Oversight Board (PCAOB) under the Security and Exchange Commission (SEC) to oversee public accounting firms and issue accounting standards.
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