Certification in Supplier Diversity Practice Exam

What does Section 404 of SOX primarily focus on?

1. Sales forecasting methods

2. Internal controls for financial reporting

3. Standardization of accounting practices

4. Employee financial literacy

The correct answer is: Internal controls for financial reporting

Section 404 of the Sarbanes-Oxley Act (SOX) primarily focuses on internal controls for financial reporting. This section mandates that publicly traded companies establish and maintain an adequate internal control structure and procedures for financial reporting. It requires management to assess the effectiveness of these controls and disclose their conclusions in their annual reports, which enhances the reliability of financial statements and helps prevent fraud. By ensuring that internal controls are in place, Section 404 aims to increase transparency and accountability within financial reporting, thereby protecting investors and promoting confidence in the financial markets. This focus is crucial for maintaining the integrity of financial information in organizations and improving corporate governance practices. Other choices, while relevant to business practices, do not align with the specific intent of Section 404. For instance, sales forecasting methods, standardization of accounting practices, and employee financial literacy do not pertain directly to the provisions set forth in SOX regarding internal controls.