Discussion: SOX and the Form 10-K Report
All public companies that are required to register with the U.S. Securities and Exchange Commission (SEC) file their required reports through the Electronic Data Gathering and Retrieval (EDGAR) database.
Answer the following question(s):
1-2 paragraph response to the following question
SOX requires a company’s CEO and CFO to certify that the 10-K is both accurate and complete. These are called Sections 302 and 906 certifications. Can a company file its 10-K report without completing these certifications? Why or why not?
2. Agree or Disagree? Why or Why not?
1. Item 9A in a corporation’s Form 10-K report is the SOX Section 404 report on internal controls. What does this section tell you about the company?
The SOX Section 404 report on internal controls, as discussed in Item 9A of the corporation’s Form 10-K report, provides vital insights into the company’s ability to maintain effective internal controls over financial reporting. This section outlines the management’s responsibility for establishing and maintaining adequate internal control structure and procedures. It also highlights the assessment of the effectiveness of these controls, including any identified material weaknesses. According to sarbanes oxley 101 “All annual financial reports must include an Internal Control Report stating that management is responsible for an “adequate” internal control structure, and an assessment by management of the effectiveness of the control structure”. Through this report, investors and stakeholders gain a comprehensive understanding of the company’s risk management practices, the reliability of its financial statements, and the extent to which it safeguards its assets. To illustrate, consider a scenario where a company discloses a material weakness in its internal controls related to inventory management. This information could imply that there is a higher risk of inventory misstatements, potentially impacting the accuracy of financial statements. Thus, the SOX Section 404 report serves as a critical tool for assessing the overall control environment and risk profile of the company, enabling informed decision-making and enhancing transparency in the corporate landscape.
Reference:
Sarbanes-Oxley. (2019). SOX Section 404: Management Assessment of Internal Controls. Sarbanes-Oxley-101.com. https://www.sarbanes-oxley-101.com/SOX-404.htm
