Sox404 Terms Of Impact On G Corporation's Financial Reporting, Internal Control Systems

The Sarbanes-Oxley Act is a United States federal law enacted in July 2002 in response to a number of major corporate and accounting scandals, which shocked public confidence in the nation's securities markets and in the financial reporting quality.In order to re-establish the public confidence, the proposed SEC rule implementing section 404 requires the responsibility of management for establishing and maintaining adequate internal control over financial reporting. The internal control report would also include management's assessment of the effectiveness of its internal control over financial reporting.The cost of complying with SOX404 is really significant to public companies, as they have to spend huge amount of management time and consultation fee on the documentation, testing and assessment of internal control framework. On the other hand, it's also a great opportunity for public companies to optimize the internal control process, and the benefit of better credit rating & market value also come with the improved effectiveness of internal control, which will surely restore investors' confidence.G Company, a Fortune 500 multinational with 6 businesses, established a G featured internal control over financial reporting in response to the requirements and focus on company governance of SOX404, and yielded positive results in terms of more efficient controls and better credit rating. Although G also encountered problems of significant cost, G finally argued that SOX404 implementation is the trend of internal control and corporate governance, by its analysis of cost benefit problem, which will be surely solved as a normal phenomenon. G also found that the scoping method is the precondition of a smooth implementation of SOX404.Almost at the same time as US accounting scandals, the manipulation of share price in China capital market was disclosed, which affected Yin Guang Xia and De Long. They were all raiding the securities market with fraudulent financial disclosures.China legislation began to impose enhanced internal control standards or corporate governance requirements on companies, in particular those with complex organizational structures. Investors, creditors, regulatory agencies, the public and all other stakeholders attach more importance on transparence of financial reports and effectiveness of internal control process. In November 2006, Ministry of Finance and Corporate Internal Control Committee published a draft for comment of internal control system, composed of one guideline and seventeen provisions, with the aim to get it standardized and communicated to companies in 3 years. It will be the first Internal Control Framework in the past twenty years of China reform and openness.With this positive exterior environment and the successful implementation of SOX404 among US public companies, Chinese companies began to pay more attention to the improvement of internal control over financial reporting, and to strengthen the core competence in international market.We can get many articles, guides or rules from SEC, PCAOB or consulting firms about SOX404, but the information about the analysis of cost benefit principle by use of the case of 404 section scoping method can not be easily found.This paper is aimed at making up the vacancy by illustration of G Company's improvement of internal control scoping method during SOX404 Section implementation. Chinese Public Companies might use it for reference to the internal control and corporate governance amelioration.This paper leaves large room for improvement due to my limited knowledge and experience, although I have widely consulted various documentation and materials. Any of your comment will be highly appreciated.