Internal Control, Sarbanes-Oxley, and the Public Company Accounting Oversight Board
AS WILL BE DISCUSSED in this chapter, most company Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) are signing an annual certification with the Securities and Exchange Commission (SEC). The certification states that they are complying with the applicable requirements of the Sarbanes-Oxley Act (SOX). What may not be known is that those requirements actually include a mandatory physical inventory of Property, Plant, and Equipment (PP&E) and a reconciliation of that inventory to the books of account, with any changes having to be recorded properly.
INTERNAL CONTROLS OVER PROPERTY, PLANT, AND EQUIPMENT-MANDATORY BUT WEAK
It is a rare company indeed that has recently taken a physical inventory of its PP&E, reconciled that inventory to the books of account, and then adjusted the books for ghost1
and zombie assets. Unless this task is completed, it is hard to see how a CEO and CFO can honestly sign the required SOX certification. A real-life CEO certification in a Form 10-K sent to the SEC goes something like this:
“SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of ___ Inc. (the “Company”) on Form 10-K for the period ending September 27, 20xx, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), ...