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Article

Title: Sarbanes-Oxley Section 404 Implementation Needs Modification

Author: Verschoor, Curtis C. Article Type: Product Analysis
Source: Strategic Finance, v86 n9 P17(2) Publication Date: Mar 2005
  ISSN: 1524-833X
URL of Publication: http://www.strategicfinancemag.com

While the provisions of the Sarbanes-Oxley Act of 2002 (SOX) continue to be regarded as a laudable step towards corporate financial accounting ethicality, it is becoming clear that modifications will be needed to ensure that the measure does not present managers with an excessively burdensome task. SOX is a large bill that contains 11 titles and 69 sections that establish detailed requirements at impact the jobs of public accounting services, senior management and boards of directors. The overall goals of the legislation involve the restoration of public trust in the honesty of financial and operating expense disclosures by public corporations. The dual strategies for accomplishing this goal involve the creation of public accounting oversight and mandates modifications in governmental procedures. So far, the main objection has centered around SOX Section 404, which creates a requirement that an independent auditor endorse the statement of effectiveness issued by management. According to industry sources, this requirement creates enormous implementation costs, particularly when further subjected to the Public Company Accounting Oversight Board's (PCAOB) Auditing Standard No. 2, which stresses application transaction control over overall company controls. The Securities Exchange Commission (SEC) is studying the possibility of modifying these regulations.

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