Accounting

The Sarbanes-Oxley Act (SOA) of 2002 introduced major changes in the regulation of financial and corporate compliances. There are several sections to the SOA, which applies to the public sector, foreign businesses, and accounting firms. One of the most important is Section 404, Management Assessment of Internal Controls (soxlaw.com.2003), which is what this paper will concentrate on.

The basic regulations of Section 404 concerning reporting to the Security Exchange Act (SEA), for a written guide to a companies internal control framework, and provide an assessment of the output of the companies internal controls and procedures for financial reporting.

According to the authors of, Internal Controls Sarbanes-Oxley Act, S404 and Beyond, internal controls went from being simple guidelines for internal auditors to a hot topic (Lorne et. Al., 2006). The destruction of formidable companies, such as Enron, and WorldCom caused a whirlwind of new, strictly enforced regulations on internal controls.  These companies caused significant financial losses for investors, and depleted investors confidence.

Section 404, in connection with the rules of the SEO, specifies that a corporation must routinely review management, and report the effectiveness of internal controls over financial reporting (Lorne et.al., 2006). Large companies are not the only businesses that must adhere to Section 404, smaller public companies are also accountable. The rules are the same, but the complexity of the reporting, auditing, and managements interaction is on a smaller scale.  Large companies must rely on a strict internal control system, while smaller ones are more reliant on company-level controls (Dolan, 2005).

Gaining investors confidence is paramount to building an equitable, national economy.  The Security and Exchange Commission became a prominent voice in amending the Sarbanes-Oxley Act, adding Section 404. Companies were now required to make reports public regarding the fairness of financial statements and the effectiveness of disclosure controls and procedures (corgovonline.com. 2005).

What internal controls are mandatory under Section 404
         
Management is required to submit an internal control report with their annual report.
         
Management must develop and maintain proper internal controls for financial reporting.
         
Management must include in their report an evaluation of their internal controls, at the end of the year (corpgovonline.com. 2005).

In Conclusion regulations have been added to the Sarbanes-Oxley Act of 2002 to protect major entities, small companies, and investors.  Stringent internal control revisions are divulged in Section 404, and the Security Exchange Commission contributed to their validity.  These controls are essential in the fair practice of all companies, and in regaining investors trust.