Section 404 of the Sarbanes-Oxley Act requires management and auditors to establish internal controls and procedures for financial reporting. It mandates that companies assess and report on the effectiveness of their internal control over financial reporting (ICFR).
SOX 404 requires public companies to establish and maintain adequate internal controls over financial reporting and to assess their effectiveness annually. It applies to all publicly traded companies in the United States and their subsidiaries.
The regulation aims to prevent financial fraud and ensure the accuracy and reliability of financial statements by requiring management to take responsibility for internal controls and auditors to provide an independent assessment.
Enhanced financial reporting accuracy
Reduced risk of financial fraud
Improved investor confidence
Stronger governance framework
SOX 404 compliance involves multiple components working together to ensure effective internal controls over financial reporting.
Management must evaluate and report on the effectiveness of internal controls over financial reporting using a recognized framework like COSO.
Design and implementation of controls to prevent or detect material misstatements in financial statements and ensure reliable financial reporting.
Comprehensive documentation of control processes, procedures, and evidence to support the effectiveness of internal controls.
Regular testing of controls to ensure they are operating effectively and continuous monitoring to identify and address deficiencies.
Processes for identifying, evaluating, and remediating control deficiencies, including material weaknesses that could affect financial reporting.
Coordination with external auditors who must provide an independent opinion on the effectiveness of internal controls over financial reporting.
Let our experts guide you through SOX 404 compliance and help you establish robust internal controls over financial reporting.