Professional Documents
Culture Documents
year-end. This means that the management and the auditor issue
two new reports in its annual report filed with the Securities and
Exchange Commission (SEC).
Section 404 has very costly implications for publicly traded
companies as it is expensive to establish and maintain the required
internal controls.
Summary of Section 302 Corporate Responsibility for Financial
Report
Requires the CEO and CFO, who are responsible for financial
information and the system of internal controls, to evaluate the
system of internal controls every 90 days and report on their
conclusions and any changes.
Sarbanes-Oxley Audits
SOX requires all financial reports to include an internal control
report. This to show that not only are the company's financial data
accurate, but the company has confidence in them because
adequate controls are in place to safeguard financial data.
Year-end financial reports must contain an assessment of the
effectiveness of the internal controls. The auditor is required to
attest to that assessment. He does this after reviewing controls,
policies, and procedures conducted along with a traditional financial
audit.
Internal control over financial reporting
It is a process designed & maintained by management to provide
reasonable assurance about the reliability of financial reporting &
the preparation of the financial statements for external purposes in
accordance GAAP.
Effective internal control over financial reporting is vital to the
proper recording of transactions & the preparation of reliable
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AS 9: Audit planning
PCAOB AS 2 clearly stated:
The auditor should evaluate all controls specifically intended to
address the risks of fraud that have at least a reasonably possible
likelihood of having a material effect on the companys financial
statements.
AS 5 contains similar language:
the auditor should evaluate whether the companys controls
sufficiently address identified risks of material misstatement due to
fraud.
Has SOX thus far had a positive, negative, or neutral effect on
public companies?
SOX has had an overall positive effect on public companies. Within the
areas of financial reporting and corporate accountability, SOX has
encouraged management to effectively formulate and implement a strong
system of internal control and financial reporting such that errors and
fraud are materially prevented, detected, and corrected. SOX has
increased the cost of compliance with federal regulations, particularly
with Section 404, but these costs are outweighed by the benefits of
robust financial reporting, increased scrutiny of managements dealings
within the organization, and increased investor confidence. Additionally,
measures are being taken to decrease the costs of SOX, such as proposed
Auditing Standard No. 5 by the PCAOB