The basic requirements of SOX for compliance are found in 5 important
sections of the act.
1. Section 302: Corporate Responsibility for Financial Reports - All
public companies are required to file periodic financial reports
with the SEC, as well as the principal executive officer and the
principal financial officer must sign each of these reports to
indicate that they have reviewed them and certify that the
reports are true and whole.
2. Section 404: Management Assessment of Internal Controls - All
annual financial reports must include the Internal Control Report
that states that management is responsible for an adequate
internal control structure. Any internal control shortcomings of
the SOX controls must be reported. Registered auditors must
attest to the accuracy of the company management's assertion
that the internal accounting controls are in place, that they are
operational, and they are effective.
3. Section 409: Real Time Issuer Disclosures - Companies are
required to disclose to the public any material changes in the
financial condition/operations of the company. This must be
done in a timely manner.
4. Section 802: Criminal Penalties for Altering Documents - Anyone
who knowingly alters, in any way/shape/form, an entry in any
record, document, or tangible object with the intent to
obstruct/impede/influence the proper administration of matters
before the SEC can be fined, imprisoned for up to 20 years, or
both.
5. Section 906: Corporate Responsibility for Financial Reports - The
criminal penalty for certifying a misleading or fraudulent financial
report can be upwards of $5million in fines and 20 years in prison.
What are the ramifications of Section 404 on management and outside
auditors? This section holds both management and outside auditors to
the highest standards in regards to the annual financial reports,
including the Internal Control Report. They must report and attest to
the completeness and accuracy of all the financial reports that are
completed annually for their company. The outside auditors must
attest that the internal accounting controls within the company are in
place, are operational, and that they are effective.
The article that I chose was the article produced by the MIT Sloan
Office of Media Relations, "MIT Sloan study shows negative effects of
Sarbanes-Oxley on nonpublic entities." This article discusses the
negative effect that the Sarbanes-Oxley act has had on nonpublic
companies. With the act demanding that public companies utilize
outside auditors, it left fewer auditors available for the nonpublic
(private and non-profit) companies to utilize. With such a demand for
auditing for the public sector companies, and the higher standard for
which the act calls for, it has decreased the number of available outside
auditors, as fewer individuals are choosing to pursue the field of
auditing. With the limits on the available outside auditors, their fees
have only increased as they are in high demand and there are so few of
them to go around. With more complex regulations and newer ones
still, this has made the auditing field less attractive and leaving even
fewer to do handle the demand that the act requires. The author agrees
that the act has done good, but at the same time that the act has
negatively effected the field of accounting, especially in the area of
auditing.
References:
Sarbanes-Oxley (SOX) Compliance Requirements.
(2022). Retrieved
from: https://www.skyhighsecurity.com/en-us/about/cloud-
compliance/sarbanes-oxley-encryption-compliance-
requirements.html
MIT Sloan Study shows negative effects of Sarbanes-Oxley on
nonpublic entities.
(Nov. 16, 2017). MIT Sloan Office of Media
Relations. Retrieved from: https://mitsloan.mit.edu/press/mit-sloan-
study-shows-negative-effects-sarbanes-oxley-nonpublic-entities
