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Why was 404 introduced?
The overall aim of course, is to restore public confidence after the Enron and Worldcom
scandals.
The Sarbanes-Oxley Act has created new requirements for public companies within
the United States of America and their global subsidiaries, which includes:
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To create tight internal controls over their financial reporting process and then
to regularly assess their effectiveness.
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Management to certify that they are responsible for establishing and maintaining
adequate internal control over financial reporting for the company.
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Management to assess the effectiveness of internal controls as of the company's
most recent fiscal year.
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Management to identify the tools used to evaluate the effectives of internal controls
of financial reporting.
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Management to make a statement that the company's independent auditors have issued
an attestation report on managements assessment of the company's internal controls
over financial reporting.
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Traditionally, a great deal of this work would have been carried out by those company's
audit firms. However, they are now unable to deal with compliance work relating
to Section 404. Neither can they prepare accounting schedules that are required
during audit work, including such matters as cash reconciliations into company account
reconciliations or depreciation schedules.
The question of independence may also go as far as comparing work related to taxation.
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