Final answer:
SOX compliance is judged by five components in the COSO framework: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities. These elements help ensure financial reporting integrity and prevent accounting fraud.
Step-by-step explanation:
The Sarbanes-Oxley Act of 2002, also known as SOX, was enacted to restore public trust in financial reports following major accounting scandals. Compliance with SOX is judged by the COSO framework, which stipulates five components of internal control. These five components are:
- Control Environment - This forms the basis for all other components of internal control, providing discipline and structure.
- Risk Assessment - Companies must identify and analyze risks to achieving their objectives, then manage these risks appropriately.
- Control Activities - These are the policies and procedures put in place to ensure that management directives are carried out.
- Information and Communication - Pertinent information must be identified, captured, and communicated in a form and timeframe that enables people to carry out their responsibilities.
- Monitoring Activities - The entire internal control system needs to be monitored and modifications made as necessary.
These components are essential in preventing accounting fraud and ensuring the integrity of financial reporting.