Sarbanes-Oxley Act Section 404(b): Protecting Investors
Quick Read: In 2002, Congress passed the Sarbanes-Oxley Act (SOX), which created new responsibilities for audit companies intended to help protect investors and restore investor confidence. Among other provisions, SOX established an internal audit control attestation requirement for public companies - Section 404(b) – that continues to attract legislative and regulatory attention.
Issue: The goal of the Sarbanes-Oxley Act was to ensure public confidence in the quality of financial reporting. Section 404(b) of the 2002 Public Company Accounting Reform and Investor Protection Act (also known as the Sarbanes-Oxley Act, or SOX) requires the independent auditor of a public company to attest to, and report on, management’s assessment of its internal accounting controls. Internal control effectiveness is closely correlated with the reliability of reported financial data and public confidence in a company’s controls and is therefore closely correlated to public confidence in its reporting. Section 404 of the Sarbanes-Oxley Act seeks to build on this correlation by requiring that every public company annually issue and file with the Securities and Exchange Commission (SEC) a management report concerning the effectiveness of the company’s internal control over financial reporting. Section 404 also requires that these management reports be accompanied by a public report from the company’s financial statement auditor attesting to the accuracy of management’s internal control report.
AICPA Position: Section 404(b) has led to improved financial reporting and greater transparency, which is in the public interest. Any attempt by Congress to scale back or modify 404(b) requirements for public companies could diminish the accuracy of financial disclosures and harm both individual and institutional investors. As a result, the accounting profession remains fundamentally concerned with any attempt to roll back the protections created by SOX Section 404(b). The AICPA believes all investors in public companies should have equal benefit of the same protections. To ensure this, the AICPA has consistently urged implementation of Section 404(b) for all publicly held companies.
AICPA Staff Contact
Rachel Dresen, Senior Director of Congressional and Political Affairs
Rachel.Dresen@aicpa-cima.com