Sunday, February 17, 2008

Sarbanes Oxley Act: Compliance and Risk Based Approach

By Alexander Gordon Under the section 404 of the Sarbanes-Oxley (SOX) Act, a public company has to file an internal report about the financial reporting procedures it follows, the effectiveness of its design and operation, and the trustworthiness of its financial dealings. The Impact of Sarbanes Oxley on Public Companies:
The internal report to be submitted under the SOX guidelines need to be detailed, and give a description of the financial dealings and state of the company. The company needs to implement cost effective solutions, reduce wasteful expenditure and use effective measures to cut down on costs. This is the only way to make a favorable impression once the internal report is out. Sarbanes Oxley Compliance Act Risk Based Approach
According to financial gurus, the Sarbanes Oxley Act should be considered an opportunity for streamlining financial applications, and reducing costs for compliance. It is an opportunity for upgrading financial systems, and putting in modern infrastructure. Here are some risk-based approaches: 1) Good Management:
If the senior management is convinced about the advantages of controls, the employees and junior level managers also come round to the idea. While the money and time spent on compliance may reduce after a period, the commitment of the management should never diminish. In order to ensure compliance, incentives like promotions, raise, shares etc. are a good option. Those employees with good compliance records should be rewarded for the effort they put in. 2) Reviewing Controls:
Test to see if the controls work, as they are intended to. Your approach should be well planned. This will help reduce the number of controls you need to test by weeding out the ones that do not work. The risk-based approach is applied to controls for financial statements. You can also consider more than one type of control, or a blend of all, like manual/automated, higher/lower etc. 3) Improving the Testing Procedure:
Once the controls best for particular applications are singled out, it will be necessary to test them for compliance. Since testing can be expensive, most companies stagger the procedure over a period of two years. In the second year, more risk-based approaches are employed, and even external auditors called in, if needed. Internal testing procedures must be streamlined, and testing plans are standardized. Compliance with the Sarbanes Oxley Act makes it mandatory that organizations make testing procedures and the risk based approach part of their daily business applications. The Act should be seen as an opportunity for streamlining controls, reduce complexity, improve communication within the organization, and reduce the risk of dishonest financial statements. There are a number of consultants available who can help you and your company to prepare for Sarbanes Oxley Act. You can locate them all over the net by doing the correct search. Alexander Gordon is a writer for - The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business. Business Owners all across the country are joining "The Community of Small Business Owners to receive and provide strategies, insight, tips, support and more on starting, managing, growing, and selling their businesses. As a member, you will have access to true Millionaire Business Owners who will provide strategies and tips from their real-life experiences. Article Source: buying phentermine online
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