This is the first publication in the Professional Guidance series of the Professional Practices Framework.

The series sets out to tackle subjects of global importance to a wide constituency of IIA members and others. The material includes matters of internal audit principle or practice, and issues of a broader social importance on where The Institute should be able to make a valuable contribution.

Sarbanes-Oxley Section 404: A Guide for Management by Internal Control Practitioners is the product of The Institute of Internal Auditors (the recognized authority and standard-maker in internal auditing in the United States and around the world) and is written for management by those who have worked on internal controls hand-in-hand with board and management — experienced internal auditors.

This Guide incorporates and reflects up-to-date guidance from the U.S. Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), The Institute of Internal Auditors (IIA), and the real-world experience and insight of practicing internal auditors.

As management, regulators, and internal and external auditors increase their understanding of the practical aspects of Section 404, and as related rules, regulations, and guidance change, this guide will be updated electronically to reflect new guidance and best practices. To keep updated, please visit www.theiia.org.

The guide also discusses the interplay between the requirements of Section 404 and those of Section 302. The latter requires annual and quarterly certifications by the chief executive officer (CEO) and chief financial officer (CFO)ii that include assessments of internal controls.

We encourage you to review your plans for Section 404 with the head of your internal audit function, especially how you will ensure that your ongoing program for the years to come is efficient and minimizes disruption to the business. The internal auditor is uniquely positioned not only to review and test your controls, but also to provide internal consulting on the adequacy of their design and on the whole management assessment and testing process. This guide contains a checklist that will be of value in assessing the efficiency of your program. (Preface)

Download Sarbanes-Oxley Section 404: A Guide for Management by Internal Control Practitioners

PDF format, 779KB, 68Pages. Published by IIA.

Introduction:

Much has been written on the subject of Section 404 of the U.S. Sarbanes-Oxley Act of 2002 and management’s annual assessment of its system of internal control over financial reporting. Each of the major accounting firms (as well as other providers of audit services) has given us extensive and valuable guidance,i generally consistent with the PCAOB’s Auditing Standard No. 2 (AS 2), “An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements” and related Frequently Asked Questions (FAQ).

Management actions are governed by the SEC and not the PCAOB. In practice, the SEC has endorsed the principles in AS 2, which it formally approved for publication in June 2004. However, it is not written as a guide for management, but rather as a standard for the external auditor. The various publications of the accounting firms, while valuable and necessary reading, are influenced by their perspectives.

Internal auditors specialize in the assessment of internal controls and have for decades. They do so as a service to the audit committee and management of their organizations and, therefore, have extensive insight into the operation of those controls and the constraints on management in providing those controls. They are experts in the theory and practice of internal controls and related auditing.

Visit The Institute of Internal Auditors (IIA) Official Web Site

Established in 1941, The IIA has more than 115,000 members worldwide. It serves as the internal audit profession’s global voice, recognized authority, acknowledged leader, principal educator, and chief advocate.

The Institute monitors legislation, regulations and pronouncements of other professional organizations throughout the world on matters that directly impact the practice of internal auditing. It promulgates the International Standards for the Professional Practice of Internal Auditing and offers a variety of leading-edge professional development opportunities, a comprehensive certification program, thorough quality assessment services, benchmarking surveys, and valuable research reports and educational products through The IIA Research Foundation.

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