CFO Strategies

The Sarbanes-Oxley Act of 2002 was enacted in response to a number of high-profile corporate reporting scandals, and established new reporting requirements for public companies and their independent auditors. Compliance with the Act is now overseen by two regulatory bodies: the Securities and Exchange Commission (SEC) for public companies and the Public Company Accounting Oversight Board (PCAOB), a private sector, non-profit corporation created by the Act itself, for their independent auditors.


The Sarbanes-Oxley Act of 2002 was enacted in response to a number of high-profile corporate reporting scandals, and established new reporting requirements for public companies and their independent auditors. Compliance with the Act is now overseen by two regulatory bodies: the Securities and Exchange Commission (SEC) for public companies and the Public Company Accounting Oversight Board (PCAOB), a private sector, non-profit corporation created by the Act itself, for their independent auditors. Section 302 of the Act requires that management certify all periodic reports filed with the SEC regarding management’s responsibility for establishing and maintaining both disclosure controls and internal controls over financial reporting. Management is also required to provide an assessment of the effectiveness of these controls, disclose any material changes to internal controls, and any fraud involving management or others significantly involved with internal control over financial reporting. Section 404 of the Sarbanes-Oxley Act specifically requires that annual reports filed with the SEC include a statement from management of its responsibility for creating and maintaining adequate internal controls over financial reporting. Management and the company's independent auditor are also required to provide an assessment of the effectiveness of these controls, including the disclosure of any material weaknesses. Section 906 of the Act requires that management certify that the information contained in all periodic reports filed with the SEC fairly presents, in all material respects, the financial conditions and results of operations of the company, and expressly imposes criminal penalties for violations. Compliance with Section 404 first became effective for accelerated filers (firms with a market capitalization greater than $75M) in 2004. For these accelerated filers, the initial approach to Section 404 compliance was both costly and complex, reflecting a bottom-up, cost-intensive assessment of a company’s internal controls over financial reporting. In the three annual financial reporting cycles since initial implementation, there has been significant public debate over the cost and complexity of Section 404 compliance. During this period, Section 404 compliance for non-accelerated filers (firms with a market capitalization less than $75M) has been postponed several times while the SEC and PCAOB has solicited public feedback regarding a more effective approach to Section 404 compliance.	For more information contact CFO Strategies at: 858.492.8589 Upcoming Seminar: New SOX Guidance: Are You Ready? For more information contact Matt Stamper at 858-492-8589 x103 or mstamper@cfos.biz

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Section 302 of the Act requires that management certify all periodic reports filed with the SEC regarding management’s responsibility for establishing and maintaining both disclosure controls and internal controls over financial reporting. Management is also required to provide an assessment of the effectiveness of these controls, disclose any material changes to internal controls, and any fraud involving management or others significantly involved with internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act specifically requires that annual reports filed with the SEC include a statement from management of its responsibility for creating and maintaining adequate internal controls over financial reporting. Management and the company's independent auditor are also required to provide an assessment of the effectiveness of these controls, including the disclosure of any material weaknesses.

Section 906 of the Act requires that management certify that the information contained in all periodic reports filed with the SEC fairly presents, in all material respects, the financial conditions and results of operations of the company, and expressly imposes criminal penalties for violations.

Compliance with Section 404 first became effective for accelerated filers (firms with a market capitalization greater than $75M) in 2004. For these accelerated filers, the initial approach to Section 404 compliance was both costly and complex, reflecting a bottom-up, cost-intensive assessment of a company’s internal controls over financial reporting.

In the three annual financial reporting cycles since initial implementation, there has been significant public debate over the cost and complexity of Section 404 compliance. During this period, Section 404 compliance for non-accelerated filers (firms with a market capitalization less than $75M) has been postponed several times while the SEC and PCAOB has solicited public feedback regarding a more effective approach to Section 404 compliance.

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