The Sarbanes-Oxley Act 1 was created by the United States Congress in 2002, following several major corporate scandals where millions of dollars in shareholder savings were lost by sometimes fraudulent management activities. A year later the US Securities and Exchange Commission or SEC, voted to put into effect new rules concerning management reporting on internal controls over financial reporting and certification of disclosures in key periodic reports.
The SEC 2 indicates that companies must “…include in their annual reports a report of management on the company’s internal control over financial reporting….. The internal control report must include: a statement of management’s responsibility for establishing and maintaining adequate internal control over financial reporting for the company; management’s assessment of the effectiveness of the company’s internal control over financial reporting as of the end of the company’s most recent fiscal year; a statement identifying the framework used by management to evaluate the effectiveness of the company’s internal control over financial reporting; and a statement that the registered public accounting firm that audited the company’s financial statements included in the annual report has issued an attestation report on management’s assessment of the company’s internal control over financial reporting.”
These rules fall under Section 404 of the Sarbanes-Oxley Act and basically state that those publicly traded companies that fall under SOX are required to:
- Establish internal controls.
- Document how these controls were determined and the steps and procedures to correct any inaccuracies or deficiencies.
- Ensure or test that the controls and any remedies work as intended.
- Management must provide a formal report on the above.
A lot has been said about the Sarbanes Oxley Act and its impact on small businesses, the SOX encompasses many of the issues outlines in many quality programs, internal controls and the Foreign Corrupt Practices Act, and take these one step further, now holding management, not just financial chiefs, directly accountable for the reporting accurate financial results, emphasis on accurate.For more about FTAA Consulting Inc. and the implications of the Sarbanes-Oxley Act for multinationals doing business, or considering establishing a foothold in Latin America please click here.
1 For the full text of the Sarbanes-Oxley Act see US Congress, 107th Session, January 23, 2002.
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