Coprate Compliance

Introduction

Corporate scandals and technological advancements have forced companies to place more emphasis on internal control systems and audits. The Sarbanes Oxley Act requires public companies to include a report about the effectiveness of controls in their annual 10-k form. Internal controls consist of procedures used by management to ensure accuracy and reliability in performing certain business functions such as financial reporting. The formation of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) defines internal control as "a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives" (COSO, 2007). ). Today's COSO framework involves several key concepts and eight components for managing enterprise risk which will be discussed within this paper.

Sarbanes Oxley Act

The Sarbanes Oxley Act was enacted in 2002 in response to the corporate scandals, which rocked the nation's confidence. The intention of SOX is to help restore the confidence of investors by enhancing corporate governance, improving the oversight of auditors, focusing the attention of companies and auditors on internal controls, and strengthening the penalties for noncompliance

Under the Sarbanes-Oxley Act of 2002, certain publicly traded companies are required to complete two separate certifications. Section 302 of the aforementioned Act mandates a set of internal procedures designed to ensure accurate financial disclosure. Under Section 404 (SOX 404) management is required to produce an “internal control report” as part of each annual Exchange Act report. The report must affirm “the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting.” The report must also “contain an assessment, as of the end of the most recent fiscal year of the company, of the effectiveness of the...