What does Section 404 of the Sarbanes-Oxley Act focus on?

Section 404 of the Sarbanes-Oxley Act is focused on management's assessment of internal controls over financial reporting. This section requires companies to establish and maintain adequate internal controls and to assess the effectiveness of these controls annually. It mandates that management must document, test, and evaluate their internal control systems to ensure they are effective in preventing material misstatements in financial reports. Additionally, external auditors are required to attest to and report on the effectiveness of these internal controls.

This focus on internal controls is essential because it aims to enhance the reliability of financial reporting and protect investors from accounting fraud. The emphasis on rigorous internal controls ensures that companies remain accountable for their financial reporting processes and that investors can trust the integrity of the financial information presented to them.