Question

Good internal control starts at the top of any organization. The tone of the organization is established with senior management. Due to the significance of management’s role in the organization the Sarbanes-Oxley Act outlined management’s responsibilities for internal controls over financial reporting. Discuss management’s responsibilities under Sarbanes-Oxley. Be sure to include your opinion on how these responsibilities may improve a company’s internal control structure.

Answer 1

The management’s responsibilities under Sarbanes-Oxley start with the need for the management of an organization to assess the effectiveness of the internal control of issuers for financial reporting. Management’s focus on assessing the effectiveness of internal control has led to improved financial reporting and greater transparency. As such Sarbanes-Oxley requires that all annual financial reports must have an Internal Control Report. This report should state that the management is responsible for developing and maintaining an adequate internal control structure and that the management assesses the effectiveness of the control structure on a regular basis.

These responsibilities will certainly improve a company’s internal control structure as management will have a duty to develop and then enhance the process that will help the organization to achieve its objectives toward operational efficiency and effectiveness. By the virtue of being responsible for internal control structure the management will better be able to ensure risk mitigation within the organization as internal control systems will help in detecting and preventing fraud. The management will be in a position to develop the organization’s control environment, risk assessment, control activities, information and communication and monitoring.