SOX Section 404 Consulting - Essay Example

Section 404 is the key aspect of SOX; it highly demands the external auditors and management of a company to emphasis on reporting of financial statements. This process turns out to be the most costly processes among all requirements laid down by the legislation for companies. This is because testing and documenting of paramount automated and manual final financial statements is highly sensitive. Under this section, the Act requires management to avail an “internal control report” together with annual Exchange Act report.

The report encompasses the role of management in putting down the procedure and procedures of the internal control system. This is because their efficiency dictates the adequacy of the financial statements (Ramos, 2008, p 23). This section contains an assessment of the company after the financial year, including the establishment and maintenance of the control system. The section also includes the level of effectiveness of the control system is reporting the audit scope. The management has to adopt the internal control systems described in international auditing standards.

In reference to Apollo Shoes Company, the cost elevation, guidance, and practice is taking place. There is a compilation of approvals made by the Public Company Accounting Oversight Board. All this activities ensure there is a fair representation of the shareholders by the management. Significant regulations and guidelines regarding audits of internal control It is evident that the internal controls of Apollo Shoes are above average. As a result, there are few recommendations needed to meet the set standards.

The company should ensure that all employees respect the internal controls in order to meet the set standards. It is noticeable that many employees hardly follow the set procedure to secure the assets of the company. We also propose that the relationship between the internal auditors and management is not healthy; therefore, the audit committee should have a sitting to resolve this arising issue. Through this, company is going to enhance auditors’ independence (Ramos, 2008, p. 23). Risks identified within the company In Apollo Shoes Company, there are few areas open to risk.

This is a result of negligence on the employees. After a detailed evaluation of the company, it is evident that Apollo Shoes is a company that has identified itself in terms of quality control systems. This is a complement that goes to the internal auditors. However, there are gaps which may lead to material misrepresentation in the financial statements. One of the key areas is the procedure followed in completing a transaction. For a company to prevent “ghost transactions,” there should be many signatories between initiation and completion of a transaction.

An ideal example is when a potential buyer places an order; the party receiving the notice should be different from that processing the order. The party processing the order should be different from the party arranging the dispatch, and lastly the party delivering goods should be different from the other parties. In reference to the audit report, confidential accounts have a weak security system. The system is using out of date technology, and this may lead to unhealthy competition.

The company should adopt new technology to enhance secrecy, and protection of ideas. Examples of these technologies include biometric security systems, and the recent business solution such as the SAP models. These solutions make use of integrated IT knowledge that is free from hacking and other mal-handling. Other areas that need concentration are stock counting, depreciation and appreciation calculation, and basis behind activities such as bonuses, retirement pension, writing off bad-debts, and disposal of assets, among others.

Internal controls and the audit process Internal controls determine the