In the midst of corporate scandals that took the U.S. government by
storm, Sarbanes Oxley Act was passed by the U.S. Congress and signed by
President George W. Bush into a law on July 30, 2002. The act was
passed to ensure transparency and accountability in the working
procedures of the corporate world in order to restore the investor's
confidence in the shaken market. Simply put, the Sarbanes Oxley Act 404
is an auditors nightmare.
The fright that had been doing rounds in the investor circles was due to the fact that high executives from a number of U.S. companies were found to have serious financial irregularities. Sarbanes Oxley Act 404 is the section 404 of the fourth title of Sarbanes Oxley Act of 2002. This section greatly increases the role of an auditor of a company due to which it is currently. one of the most debatable topics of this Act. Here are some informative facts relating to the Sarbanes Oxley Act 404, You can read more free advice on Sarbanes Oxley at http://www.SarbanesOxleyReviews.comThe act makes the management of the company as well as the external auditor doing the Sarbanes Oxley audit to prepare reports about the internal control measures over financial reporting. This has led to quite a stir in the corporate as well as auditor circles in the U.S. because it causes a company to bear tremendous amount of cost of compliance. It also invalidates some of the previous auditing approach by which the external auditors were able to provide cost effective service to the companies. This is something that has adversely affected the smaller publicly traded companies with revenue below $100 million. These companies were found to be spending as much as 2.5% of their revenue just for ensuring compliance with Section 404.To add to the plight of the editor, Sarbanes Oxley Act 404 makes it the responsibility of the Auditor and the company management to do a kind of top down risk assessment. The Public Company Accounting Oversight Board and the Securities and Exchange Commission of the U.S. have released Auditing Standard No. 5. This new standard has been released to fill the void created by the fact that Sarbanes Oxley Act 404 which had rendered the earlier Auditing Standard No. 2. According to this new byproduct of the Sarbanes Oxley Act 404, the auditors are now required to make an assessment of the design effectiveness and operational effectiveness of the internal controls which have been implemented by the company in relation to significant accounts and relevant assertions. The Sarbanes Oxley Act 404 has also made it necessary for auditors to follow the new standard no. 5 to understand the Information Technology related aspects. This was so that they could identify the points where financial irregularities may take place. Sarbanes Oxley Act 404 now asks that the new standard 5 auditors perform fraud risk assessments which are considered to be rather a gray area in auditing. Failure to ensure Sarbanes Oxley act compliance can lead to auditor being punished along with management. With the Sarbanes Oxley Act 404 which is an auditors nightmare, there has been a sweeping, radical approach to ensure corporate accountability and transparency.