SOX 404 | Sarbanes Oxley Act

Sarbanes Oxley Act was enacted in the wake of some of the larges corporate scandals in early 2000. Companies such as Enron, Worldcom, Tyco, as well as a number of others forced the government to enact laws that would allow the court to more harshly punish senior corporate officers over the action or inactions of the company. The act covers issues such CEO & CFO's responsiblity to certify financial reports, detailed and acclerated reporting of insider trades as well as compensation for senior executives, as establishing a public company accounting oversight board, auditor independence, corporate responsibility and enhanced financial disclosure. The Act gives additional powers and responsibilities to the U.S. Securities and Exchange Commission to regulate companies financial actions.

One of the sections within the Sarbanes oxley Act, Section 404 or SOX 404, stipulates that public companies will be required to discolose th way internal controls are established and implemented over financial reporting. This report should contain:

SOX 404 establishes the responsibility of senior management for creating and maintaining adequate internal control over financial reporting
SOX 404 requires proof of a blueprint used by management to evaluate the effectiveness of internal control
SOX 404 requires management's assessment of the effectiveness of internal control as of the end of the company's most recent fiscal year
SOX 404 requires Disclosure of material weaknesses
SOX 404 requires a statement that its auditor has issued an attestation report on management's assessment
SOX 404 also requires the company's auditor to attest to, and report on, management's assessment of the effectiveness of the company's internal control over financial reporting.

Sarbanes Oxley Compliance with SOX 404 will require significant investment by public companies to create IT and business process improvements in order to meet these mandated requirements. An accelerated filer (a U.S. company with market capitalization over $75 million that has filed at least one annual report with the SEC) was required to comply with the SOX 404 requirements for its first fiscal year ending on or after November 15, 2004. A non-accelerated filer must begin to comply for its first fiscal year ending on or after July 15, 2007.