On October 13, 2006, Deloitte & Touche LLP, gave a presentation to attorneys in Redwood City, CA on the Sarbanes-Oxley Act of 2002. The speaker indicated that if a company was not able to comply with Section 404, it was probably in violation of the Foreign Corrupt Practices Act (FCPA).
In response to illegal political contributions and bribery payments to foreign officials by large corporations in the 1970s, Congress enacted the FCPA in 1977 to prohibit foreign bribery. The FCPA consists of two parts: (1) an anti-bribery provision, and (2) for public companies, an accounting requirement.
Section 404 relates to reliability of internal control reports. Complying with Section 404 leads to risk reduction. The cost of capital and personal liabilities decrease. In the news on stock option backdating, many executives claim that they did not think they did anything wrong, but perhaps they did not care to do something right either.
Statistics indicate that financial statement restatements result mostly from bad processes or controls versus fraud. Internal control is the process by which an entity manages risk. Risk assessment in entering in contracts includes whether contracts have gone through legal review, monitoring of side agreements, and review by Board members that are independent.
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