Big4Guy

Sarbanes Oxley requires an organization to first evaluate the controls at the entity level. Once entity level controls are evaluated, the focus of controls shifts to evaluation of internal controls over the financial reporting process. How does all this work out? To start with, an organization needs to identify significant accounts or groups of accounts which have an effect on financial reporting process. What are these significant accounts? A significant account is defined as...

"An account or a group of accounts is significant if it can contain errors that individually or collectively have a material effect on the financial statements or even if they are not material could adversely affect the company's reputation or relationship with customers, shareholders or public."

To make matters a little easier, I have included below certain factors which a company can consider to evaluate whether an account is a significant account or not.

- Size and composition of the account
- Nature of the account
- Type of transactions occuring in the account
- Susceptibility of the account to manipulation or loss
- Volume of transactions / activity in the account
- Changes in organization business affecting the account
- Account balance in the account vis-a-vis the total balances in the group.

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