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Sarbanes-Oxley 404

Sarbanes-Oxley 404

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Published by: zurairi80 on Aug 10, 2009
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05/11/2014

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Q.What is Sarbanes-Oxley?A.The Sarbanes-Oxley Act of 2002 (also known as the Public Company Accounting Reform andInvestor Protection Act of 2002 and commonly called SOX, S-Ox or Sarbox; July 30, 2002) isa controversial United States federal law named after sponsors Senator Paul Sarbanes (D-Md.) and Representative Michael G. Oxley (R-Oh.), the Act was approved by the House by avote of 423-3 and by the Senate 99-0. The legislation establishes new or enhanced standardsfor all U.S. public company boards, management, and public accounting firms. The Actcontains 11 titles, or sections, ranging from additional Corporate Board responsibilities tocriminal penalties, and requires the Securities and Exchange Commission (SEC) to implementrulings on requirements to comply with the new law. The first part of the Act establishes anew quasi-public agency, the Public Company Accounting Oversight Board, which is chargedwith overseeing, regulating, inspecting, and disciplining accounting firms in their roles asauditors of public companies. The Act also covers issues such as auditor independence,corporate governance, internal control assessment, and enhanced financial disclosure.Q.What companies does SOX apply to?A.Any company governed by the Securities and Exchange Commission (SEC) which includesall publicly traded companies; including all divisions, and their wholly owned subsidiaries,must comply with Sarbanes-Oxley. In addition Sarbanes-Oxley also applies to any non-US public multinational company engaging in business in the US.Q.Why was SOX implemented?
A.
The law was passed in response to a number of major corporate and accounting scandalsincluding those affecting Enron, Tyco International and WorldCom. These scandals resulted ina decline of public trust in accounting and financial reporting practices. quisitions of companies into a larger public entity.Q.What are the penalties for noncompliance to SOX?A.Corporate noncompliance to earlier government regulations, such as occupational health andsafety rules in the work place (OSHA requirements), resulted in corporate fines, lawsuits andnegative publicity. Noncompliance to Sarbanes-Oxley regulations is harsher. A CEO or CFOwho submits a wrong certification is subject to a fine of up to $1 million and imprisonmentfor up to 10 years. If the wrong certification is submitted “willfully,” the fine can be increasedup to $5 million and the prison term can be increased up to 20 years.Q.What is S-Ox 404?
A.
Section 404 of the Sarbanes-Oxley Act relates to Management's assessment of internal controlover financial reporting. Both management and the external auditor are responsible for  performing their assessment in the context of a top-down risk assessment, which requiresmanagement to base both the scope of its assessment and evidence gathered on risk.Acquisitions of companies into a larger public entity.
 
Q.What does SOX 404 have to do with information technology?A.The financial reporting processes of most organizations are driven by IT systems. Fewcompanies manage their data manually and most companies rely on electronic management of data, documents, and key operational processes. Therefore, it is apparent that IT plays a vitalrole in internal control. Chief information officers are responsible for the security, accuracyand the reliability of the systems that manage and report the financial data. Systems such asERP (Enterprise Resource Planning) are deeply integrated in the initiating, authorizing, processing, and reporting of financial data. As such, they are inextricably linked to the overallfinancial reporting process and need to be assessed, along with other important process for compliance with Sarbanes-Oxley Act. So, although S-Ox signals a fundamental change in business operations and financial reporting, and places responsibility in corporate financialreporting on the chief executive officer (CEO) and chief financial officer (CFO), the chief information officer (CIO) plays a significant role in management's assessment of internalcontrol under Section 404 and in supporting the financial statement certification process.Q.When do companies have to be compliant with S-Ox?A.For non-accelerated filers (registered companies with a market cap of $75 million or less), theimplementation date for complying with the reporting requirements regarding management'sevaluation of internal controls has changed several times. In December 2006, the Securitiesand Exchange Commission (SEC) issued its most recent final regulation which states:• a non-accelerated filer must include its management report on internal control over financialreporting for fiscal years ending on or after December 15, 2007• a non-accelerated filer is required to file its auditor's attestation report on internal controlover financial reporting when it files its annual report for fiscal years ending on or after December 15, 2008.In addition, the SEC has amended its filing requirements regarding the reporting on internalcontrol for newly public companies. Under the new amendments, a company will not berequired to include its report on internal controls until the year following its first annualreport.Q.What is the SEC?A.The United States Securities and Exchange Commission (commonly known as the SEC) is aUnited States government agency having primary responsibility for enforcing the federalsecurities laws and regulating the securities industry/stock market. The SEC was created bysection 4 of the Securities Exchange Act of 1934 (now commonly referred to as the 1934Act). In addition to the 1934 Act that created it, the SEC enforces the Securities Act of 1933,the Trust Indenture Act of 1939, the Investment Company Act of 1940, the InvestmentAdvisers Act of 1940, the Sarbanes-Oxley Act of 2002 and other statutes. Christopher Cox isthe current chairman of the SEC.Q.What is GAAP?A.Generally Accepted Accounting Principles (GAAP) is the standard framework of guidelinesfor financial accounting. It includes the standards, conventions, and rules accountants followin recording and summarizing transactions, and in the preparation of financial statements.

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