Sarbanes-Oxley SOX 404 - What would cause internal controls to be ineffective?

• Controls are ineffective if one material weakness is identified by management and/or by Accounting Company as of the end of the fiscal year
• Controls may be ineffective if a number of significant control deficiencies exist which in aggregate could lead to a material misstatement of financial statements
• Examples of items potentially leading to a material weakness:
  • Inadequate documentation to support management's assessment
  • Inadequate internal controls over financial reporting
• The decision on what items are a material weaknesses will be determined by Company's Disclosure Committee; Management; Accounting Firm; and the Audit Committee

Sarbanes Oxley Module 1 Summary

• Sarbanes Oxley law is broad and far reaching
• Section 404 applies to controls over financial reporting and disclosures
• The CEO and CFO must certify that we have designed and tested an effective system of controls over financial reporting using a recognized framework; and that we have found controls to be operating effectively as of December 2004
• The PCAOB Audit Standard is rules based and prescribes the methodology and definitions that must be followed