Section 404 of the Sarbanes-Oxley Act
This article review is on the article written by David S. Addington called “Congress Should Repeal or Fix Section 404 of the Sarbanes-Oxley Act to Help Create Jobs.” The Heritage Foundation published the article on September 30 2013. In the article, the author addresses concerns among companies staying in compliance with Section 404 of the Sarbanes-Oxley Act. The author indicates that section 404 of the Sarbanes-Oxley act has caused a financial burden on companies. Companies spend a large amount of money to stay in compliance with the regulations on section 404 of the Sarbanes-Oxley Act. Furthermore, companies could use the money spent on auditing financial records to invest in more business lines and create more jobs (Additon, 2011).
Section 404 of the Sarbanes-Oxley Act requires companies to include a statement of the responsibility of the company management for “establishing and maintaining an adequate internal control structure and procedures for financial reporting” along with their report filed with the Securities and Exchange Commission (SEC). The annual report must include an assessment of the effectiveness of the company’s internal control structure and procedures for financial reporting, followed by having a registered public accounting firm “attest on, and report on the assessment made by the management.” This aspect of the legislation requires companies to document important financial documents along with the review from the certified public accounting firm; it requires tremendous effort and large amounts of money for companies to comply with this aspect of the Sarbanes-Oxley Act (Additon, 2011). The author indicates that companies can use the money spent by companies to stay in compliance on other businesses lines; creating more job opportunities and benefiting the economy. The author demands that Congress should examine whether section 404 is needed, and if so, how to cut its costly burden on businesses. Modifying or repealing section 404 of the Sarbanes-Oxley Act can free businesses to stimulate the economy (Additon, 2011). Businesses must stay in compliance with the law to operate efficiently at all times. Companies should stay in compliance to get the confidence and trust from investors.
The 2012 Sarbanes-Oxley Compliance Survey listed where companies stand on reviewing cost, time, efforts, processes to stay in compliance with the regulations. Approximately 35% of midsize organizations spend from $100,000 to $500,000 annually, and almost 80% spend $1 million or less. By year four of Sarbanes-Oxley compliance, most organization are spending $100,000 to $500,000 annually (2012 Sarbanes-Oxley Compliance Survey); this is relatively a small amount of money compared the total amount the company actually makes. The Sarbanes-Oxley act protects the public from unethical behavior by companies. If the government does not hold companies accountable for their financing, it will lead to unconfident investors in the market; if the public is not investing in businesses the economy will not be better. The prize the company pays to stay in compliance with the Sarbanes-Oxley Act is at the right price, achieving trust, and confidence from the public.
David S. Addington “Congress Should Repeal or Fix Section 404 of the Sarbanes-Oxley Act to Help Create Jobs.” The Heritage Foundation. September 30, 2011. Web. Retrieved from: http://www.heritage.org/research/reports/2011/09/congress-should-repeal-or-fix-section-404-of-the-sarbanes-oxley-act-to-help-create-jobs 2012 Sarbanes-Oxley Compliance Survey. Retrieved from: http://www.protiviti.com/en-US/Documents/Surveys/2012-SOX-Compliance-Survey-Protiviti.pdf