Customer Focused Technology - Professional Technology Consulting

Sarbanes-Oxley Act of 2002

Below is the text of the Sarbanes-Oxley Act of 2002 with annotations and explainations by Dave.

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1. Entity level Control Requirements not specific to Sections 302 or 404.
Examples include such items as the obligation to report ownership when it reaches greater than 10%, statements about the financial expertise on the Audit Committee of the Board and record retention policies.

2. Entity level Controls in Support of Section 302 and Section 404.
For convenience the text of these two important control sections is included below. The COSO “Internal Controls-financial Framework” becomes the basis for these controls.

Section 302 of the Sarbanes-Oxley Act of 2002

Regulations Required. The Commission shall, by rule, require, for each company filing periodic reports under section 13(a) or 15(d) of the Securities Exchange Act of 1934, that the principal executive officer or officers and the principal financial officer or officers, or persons performing similar functions, certify in each annual or quarterly report filed or submitted under either such section of such Act that--

the signing officer has reviewed the report;

based on the officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading;

based on such officer's knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition and results of operations of the issuer as of, and for, the periods presented in the report;

the signing officers--

are responsible for establishing and maintaining internal controls;

have designed such internal controls to ensure that material information relating to the issuer and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared;

have evaluated the effectiveness of the issuer's internal controls as of a date within 90 days prior to the report; and

have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date;

the signing officers have disclosed to the issuer's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function)--

all significant deficiencies in the design or operation of internal controls which could adversely affect the issuer's ability to record, process, summarize, and report financial data and have identified for the issuer's auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; and

the signing officers have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Foreign Reincorporations Have No Effect. Nothing in this section 302 shall be interpreted or applied in any way to allow any issuer to lessen the legal force of the statement required under this section 302, by an issuer having reincorporated or having engaged in any other transaction that resulted in the transfer of the corporate domicile or offices of the issuer from inside the United States to outside of the United States.

Deadline. The rules required by subsection (a) shall be effective not later than 30 days after the date of enactment of this Act.

Section 404 of the Sarbanes-Oxley Act of 2002

RULES REQUIRED. - The Commission shall prescribe rules requiring each annual report required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) to contain an internal control report, which shall -

state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and

contain an assessment, as of the end of the most recent fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.

INTERNAL CONTROL EVALUATION AND REPORTING. - With respect to the internal control assessment required by subsection (a), each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement.

Entity level controls in support of Sections 302 and 404 include such issues as the identification of fraud risks and controls to prevent them, the need to establish remuneration schemes for senior executives that do not overemphasize sort term incentives and the need to communicate the Company's approach to controls to all employees.

3. Controls over Financial Activities in Support of Sections 302 and 404. Implementing this category of controls requires that the Company identifying the key processes that produce the transaction that feed the material accounts on the financial statements.

4. General Controls over the IT Environment. These controls are related to the IT function across the Company and includes such areas as selecting software packages, making changes to production code, making changes to the infrastructure and governing the priorities of IT resources.

5. Specific Controls over IT Applications. These are very specific controls related to the computer applications themselves. They include such issues as establishing a field level control that prevents an amount over a certain level from being entered, eliminating imports of duplicate bank statement files and setting access privileges by person.

Dave will be happy to review a brief PowerPoint presentation on SOX compliance with you.

Just call 949-872-3560 or email dave@customerfocusedtechnology.com.