When Congress passed the Sarbanes-Oxley Act, it sought to improve corporate governance of public corporations and reduce fraudulent reporting.
The Act places new reporting burdens on corporations and imposes penalties for non-compliance. Chief Executives of public companies must personally certify the integrity of financial reports, as well as the procedures and systems used to create them. Public accounting firms must also confirm the validity of the financial reports.
Sarbanes-Oxley applies only to public companies. However, many private companies are adopting the regulation and its methods in an effort to provide better financial record-keeping and reporting.
Section 404 requires a corporation to report on the effectiveness of their internal controls and requires an external auditor to attest to this statement. Consequently, corporations must now document their internal control structure and evaluate its effectiveness to ensure the accuracy of financial data.
By outsourcing reconciliation activities, a company demonstrates willingness to conform and to do so by producing unbiased results.