What does the term "section 404 compliance" refer to?

The term "section 404 compliance" specifically refers to a requirement of the Sarbanes-Oxley Act, which is aimed at enhancing the accuracy and reliability of corporate disclosures in financial reports. This section mandates that publicly traded companies establish and maintain adequate internal controls over financial reporting. It requires management to assess and report on the effectiveness of these controls, and it also requires external auditors to attest to that assessment. This regulation was introduced in response to financial scandals that highlighted the importance of having robust internal controls to prevent fraudulent activities and ensure the integrity of financial statements. By ensuring compliance with section 404, companies aim to bolster investor confidence and enhance corporate governance.