SOX 404(a) vs. 404(b): What’s the Difference?

‍Key Takeaways

• While both are part of the Sarbanes-Oxley Act of 2002, SOX 404(a) and 404(b) serve different purposes.
• Section 404(a) requires management to assess and report on internal controls over financial reporting.
• SOX 404(b) requires an independent auditor to attest to management’s ICFR assessment.
• Not all public companies are required to comply with SOX 404(b) - smaller companies are often exempt.
• Strong SOX controls and automation help reduce compliance risk and audit effort.
  

What Is SOX in Accounting? A Quick Refresher

The Sarbanes-Oxley Act (SOX) of 2002 was enacted in response to major corporate accounting scandals to strengthen financial reporting, transparency, and accountability.

In accounting, SOX compliance refers to the processes, controls, and documentation that ensure financial statements are accurate and reliable. At its core, SOX focuses on Internal Controls over Financial Reporting (ICFR) and the governance structures that support them.

For accounting teams, SOX compliance is not a one-time exercise. It is an ongoing framework that affects daily workflows, month-end close activities, reconciliations, and audits.

What Is SOX 404(a)?

SOX Section 404(a) requires company management to establish, maintain, and evaluate internal controls over financial reporting and to report on their effectiveness annually.

What Management Must Do Under 404(a)

• Design & document SOX internal controls
• Evaluate control effectiveness throughout the year
• Identify control deficiencies or material weaknesses
• Remediate issues in a timely manner
• Include a management assessment in the annual report

This requirement applies to all public companies, regardless of size.

What Is SOX 404(b)?

SOX Section 404(b) builds on 404(a) by requiring an independent external auditor to provide an attestation on management’s ICFR assessment.

What 404(b) Adds

• Independent validation of management’s controls
• Additional testing by external auditors
• A formal SOX audit opinion on ICFR

Who Must Comply With 404(b)?

Not all companies are subject to 404(b). It generally applies to accelerated and large accelerated filers, while many smaller reporting companies and emerging growth companies are exempt.

SOX 404(a) vs. 404(b): Key Differences

Both sections are critical to accounting SOX compliance, but they introduce different levels of effort, scrutiny, and cost.

How SOX 404 Relates to Other SOX Sections

SOX 404 does not exist in isolation. Other sections also play a key role in compliance.

SOX 302 Compliance

SOX 302 requires CEOs and CFOs to personally certify the accuracy of financial statements and the effectiveness of disclosure controls.

SOX 404 Compliance

SOX 404 focuses on control design, testing, and reporting, ensuring those certifications are supported by strong ICFR processes.

Together, these sections form the backbone of accounting SOX compliance.

Why Internal Controls Over Financial Reporting Matter

Strong SOX internal controls help organizations:

• Prevent material misstatements
• Detect errors or fraud earlier
• Support accurate month-end and year-end closes
• Reduce audit risk
• Build trust with investors and regulators

Most companies design their SOX controls using the COSO framework, which provides a structured approach to governance, risk management, and control activities.

Common SOX 404 Challenges for Accounting Teams

Even mature organizations face challenges with SOX compliance:

• Manual SOX compliance testing
• Inconsistent documentation across teams
• Limited visibility into control ownership and status
• Difficulty coordinating with external auditors
• Time-consuming evidence collection during audits

Without the right tools, these issues can slow down the close and increase compliance risk.

How Technology Supports SOX Compliance

Modern SOX compliance software and tools like FloQast help accounting teams streamline compliance by:

• Centralizing control documentation
• Automating testing workflows
• Tracking remediation activities
• Maintaining audit-ready evidence
• Improving collaboration with auditors

FloQast supports SOX compliance by embedding controls into everyday accounting workflows, rather than treating compliance as a separate exercise.

SOX Compliance Beyond Accounting

While SOX primarily impacts finance teams, it also intersects with broader GRC compliance initiatives. Organizations often align SOX efforts with frameworks and standards such as:

• COSO framework
• PCI DSS compliance
• Enterprise risk management programs

A unified compliance approach reduces redundancy and improves governance across the organization.

Choosing the Right SOX Compliance Approach

Understanding the difference between SOX 404(a) and 404(b) is essential for building an effective compliance strategy. While both focus on internal controls over financial reporting, they introduce different responsibilities, costs, and audit requirements.

By strengthening SOX controls, improving documentation, and leveraging automation, accounting teams can reduce risk, improve efficiency, and stay audit-ready year-round.

Take the next step toward smarter SOX compliance. Get a Demo and see how FloQast helps accounting teams manage SOX requirements with confidence and clarity.