Question

The Sarbanes-oxley Act of 2002 requires which of the following for publicly traded companies:

a) management assessment of the effectiveness of the disclosure control structure used to determine financial results

b) audit committee approval of all services provided by a company's independent auditors.

c) reporting by the independent auditors on the reliability of management's assessment of internal controls.

d) all of the above are required by the Act

What is the correct answer ?

Answer 1

The Sarbanes-Oxley Act of 2002 (SOX) is an act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. The SOX Act mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud.

The rules and enforcement policies outlined by the SOX Act amend or supplement existing legislation dealing with security regulations. The two key provisions of the Sarbanes-Oxley Act are Section 302 and Section 404.

Section 302 is a mandate that requires senior management to certify the accuracy of the reported financial statement. Section 404 is a requirement that management and auditors establish internal controls and reporting methods on the adequacy of those controls. Section 404 has very costly implications for publicly traded companies as it is expensive to establish and maintain the required internal controls.

In addition to the financial side of a business, such as the audits, accuracy and controls, the SOX Act also outlines requirements for information technology (IT) departments regarding electronic records. The SOX Act does not set forth a set of business practices in this regard but instead defines which company records need to be stored on file and for how long. It does not specify how a business should store its records, only that the IT department is responsible for storing them, according to standards outlined in the SOX Act.

Section 802 of the Act contains the three rules that affect record keeping. The first deals with destruction and falsification of records. The second strictly defines the retention period for storing records. The third rule outlines the specific types of business records that need to be stored, which includes electronic communications.

d) All of the above are required by the act