Sarbanes-Oxley Tutorial - 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 2005
  
  The 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