Corporate Compliance Report

Running head: Corporate Compliance Report

Introduction

Technological advancements, an increase in the number of business failures and the widely publicized corporate scandals which have rocked the nation's confidence have forced companies to place more emphasis on internal control systems and audits. Section 404 of the Sarbanes Oxley Act requires public companies to include a report about the effectiveness of controls in their annual form 10-k. Internal controls consist of procedures used by management to ensure accuracy and reliability in performing certain business functions such as financial reporting. Furthermore, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) defines internal control as "a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives" (COSO, 2006).

The context of this paper will expound upon the importance of the Sarbanes-Oxley Act, discuss the importance of internal controls, identify effective internal control techniques, and conclude with implementing internal controls and ehics.

Sarbanes Oxley Act

The Sarbanes Oxley Act was enacted in 2002 in response to the corporate scandals which rocked the nation's confidence. The intention of SOX is to help restore the confidence of investors by enhancing corporate governance, improving the oversight of auditors, focusing the attention of companies and auditors on internal controls, and strengthening the penalties for noncompliance (Deloitte, 2004).

Section 302 and 404 emphasize the importance of internal controls and mandate disclosures related to internal control effectiveness and changes. Section 302 of Sarbarnes Oxley "mandates a set of internal procedures designed to ensure accurate financial disclosure" (Wikipedia, 2007) and company's officers are required to certify they are responsible for establishing and maintaining internal controls. Section 404 of Sarbanes Oxley requires auditors to perform an audit of financial statements as well as report on the effectiveness of internal controls. According to this section, internal controls should convey management responsibilities to establish and maintain adequate internal control over financial reporting and the framework used as criteria to evaluate the effectiveness of the company's internal control.

To address internal control issues, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued control guidelines called the Internal Control-Integrated Framework in September of 1992. COSO helps to emphasize the understanding of a good internal control system and provides