The following is not meant to be legal advice.
Section 404 requires adoption of internal controls. Section 404 requires the development of internal controls over financial reporting. Section 404 has been required since the enactment of the Foreign Corrupt Practices Act, but has just come into the limelight since Sarbanes-Oxley.
Section 404 mandates methods to control fraud. This is why companies have begun to document controls used to prevent fraud such as signature authorities, how to handle incoming shipments. Fraud may sometimes be detected by accident. Unstructured data such as the volume of email communications has made structured documentation difficult.
There are no specified penalties for identifying weaknesses in controls. Intentional inaccurate certification may result in jail time. This is when a company certifies there are controls when there are not. Even if there are no specified penalties for weaknesses, it means that the financial statements are not reliable so a public company’s stock price may decrease.
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