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Ask the Expert: New query on the SOX process & related SEC guidance answered

Last week a QFINANCE user posed the following question on the SOX process via our Ask the Expert facility:

“I read in your SOX information that companies are supposed to make public disclosures of 'material weaknesses' in the quarter they were identified as well as report them to the audit committee. I have been watching a company for a couple months and feel they have a couple of 'material weaknesses' that they have had knowledge of for some time. What's the best way to check and see if they have reported these?”

It is an interesting question, and invites comment on increased conservatism by auditors in the regulation of businesses – and how transparent and accessible this regulation is.

So where does one look to find out whether or not a company is complying with the SOX process? A detailed and practical response to the question has been provided by David Doney, author of QFINANCE article ‘The Effect of SOX on Internal Control, Risk Management, and Corporate Governance Best Practice’. The response can now be found on our Ask the Expert Questions and Answers page.

Here’s some background information on SOX, taken from a QFINANCE ‘Key Concepts’ article.

“The Sarbanes–Oxley Act of 2002 (SOX) sought to clean up corporate America following the spectacular financial scandals that engulfed Enron and WorldCom and which cost investors billions of dollars.

Sarbanes–Oxley requires US companies to report annually on the operational effectiveness of their internal controls over financial reporting. The company’s auditors must also attest to and report on the board’s assertions. So the legislation has the potential to have a profound impact on the governance and behavior of any business with a US listing.

The burden of responsibility for compliance with SOX falls firmly on the shoulders of the CEO and CFO, who can be fined up to £3 million, go to prison for up to 20 years, or both, if they are found guilty of breaching the Act.”

In his QFINANCE article ‘What are the leading causes of financial restatements?’ Todd DeZoort says, “The passage of the Sarbanes–Oxley Act of 2002 (SOX) prompted a dramatic increase in the number of financial statements filed each year. The Act (for example, Section 404 on internal controls) created significant focus on the quality of financial governance by management, audit committees, internal auditors, and external auditors.”

Have you discovered QFINANCE Ask the Finance Expert yet? Exclusively to QFINANCE, you can pose any finance or business question to us, and we will get it answered by a professional. To submit your question, please click here.

Tags: Ask the Expert , auditing , regulation , Sarbanes–Oxley Act , SOX , transparency
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