Unit 1 Discussion
AICPA Discussion
Find a website to read about the Sarbanes-Oxley Act of 2002 (SOX). Also, read Section 404, compare the requirements of Section 404, and respond to the discussion topic. Feel free to include additional websites for this discussion as well. Remember to cite all references used. What does Section 404 require of management’s internal control report? Research a public company and explain how management reports on internal control to meet the requirements of Section 404.
AICPA Discussion
The Sarbanes-Oxley (SOX) Act was passed by the US Congress for helping investors from fraud in financial reporting by corporations. The SOX Act was incorporated in the year 2002 for dealing with the financial scandals in that decade. The frauds mainly in high-profile companies have weakened the trustworthiness and confidence of investors concerning the financial reports presented by the companies (Techtarget.com, 2020). With the regulation of this act, newer and stricter rules were created for the accountants, auditors as well as corporate officers of the organizations, which imposed stringent requirements on record keeping. It also imposed new criminal penalties in case the securities laws were violated if any.
To concise this lengthy piece of legislation, it has been divided into its three main section numbers which are Section 302, Section 404, and Section 802. As per Section 404 of the Act, the management and the auditors of the company are required to establish internal control and reporting methods for ensuring the adequacy of the reports of the firm. In other words, it mainly deals with the control over fraud in the financial statements of the company by using internal control methods by the management.
The public company considered here is Coca-Cola. As per the financial reports, the company management complies with the Sarbanes-Oxley Act (Investors.coca-colacompany.com, 2021). Every quarter, the company tries to comply with the Act on the following aspects:
1. Assessment of risk: The management of Coca-Cola tries to continuously evaluate the effectiveness of the risk associated with the policies of the management as well as evaluation of the implementation of the same on the operations of the organization.
2. Establishing Internal Control: The Company here verifies its compliance with the guidelines regarding internal control under the said Section 404 of the SOX Act. It proposes that proper follow-ups were taken on the preventive actions implemented concerning the issues regarding internal control. Also, the information has been submitted to the concerned authorities on the areas which required improvements.
3. Audit from external sources: For the appointment of the external auditors, the management has complied with the regulations and requirements concerning their independence and also discuss the work program with the internal auditors.
4. Internal Auditing: On the internal auditing side, all the protocols have been compiled by the management and periodic reports have been received by them. Also, it has participated in the processes for risk assessment along with validating the internal control system.
5. Disclosure of financial information: The management has reviewed the accounting policies followed by the managers and the validation of the financial statement to be disclosed to third parties and investors.
Along with the above-mentioned aspects the management of Coca-Cola Company Limited applied internal control by reviewing the business code of ethics, training policies, reviewing the various legal provisions applicable to the company.
References:
Investors.coca-colacompany.com (2021). financial-information Retrieved from, https://investors.coca-colacompany.com/financial-information/financial-results[Retrieved on 8th March 2022]
Techtarget.com (2020). Sarbanes-Oxley-Act Retrieved from, https://www.techtarget.com/searchcio/definition/Sarbanes-Oxley-Act#:~:text=The%20Sarbanes%2DOxley%20Act%20of,errors%20and%20fraudulent%20financial%20practices.[Retrieved on 8th March 2022]
