Is it REQUIRED...?

Question

Is it REQUIRED to give assurance or conclusion that the internal controls are effective or otherwise (weak internal controls)? If so, any links to share? thank you very much!

Answer 1

Section 404 of the Sarbanes-Oxley Act of 2002 states:
Management Assessment Of Internal Controls:

Requires each annual report of an issuer to contain an "internal control report", which shall:

state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and

contain an assessment, as of the end of the issuer's fiscal year, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.

Each issuer's auditor shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this section shall be in accordance with standards for attestation engagements issued or adopted by the Board. An attestation engagement shall not be the subject of a separate engagement.

The language in the report of the Committee which accompanies the bill to explain the legislative intent states, "--- the Committee does not intend that the auditor's evaluation be the subject of a separate engagement or the basis for increased charges or fees."

Directs the SEC to require each issuer to disclose whether it has adopted a code of ethics for its senior financial officers and the contents of that code.

Directs the SEC to revise its regulations concerning prompt disclosure on Form 8-K to require immediate disclosure "of any change in, or waiver of," an issuer's code of ethics.

If the SOx Act doesn't apply to a co., then there is no obligation by statutory auditors to give a positive assurance that the internal controls are adequate or effective. However a co. may commission an auditor to conduct an internal control review or it may outsource its internal audit function to an auditor in which case they of course will have to submit a report after the review.