The Sarbanes-Oxley Act was passed in 2002 in response to corporate accounting scandals to increase transparency and accuracy in corporate financial reporting. It established new or enhanced standards for all U.S. public company boards, management, and public accounting firms. Key provisions addressed certification of financial reports, corporate governance, internal control assessment, auditor independence, corporate responsibility, and enhanced financial disclosures.
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The Sarbanes-Oxley Act was passed in 2002 in response to corporate accounting scandals to increase transparency and accuracy in corporate financial reporting. It established new or enhanced standards for all U.S. public company boards, management, and public accounting firms. Key provisions addressed certification of financial reports, corporate governance, internal control assessment, auditor independence, corporate responsibility, and enhanced financial disclosures.
The Sarbanes-Oxley Act was passed in 2002 in response to corporate accounting scandals to increase transparency and accuracy in corporate financial reporting. It established new or enhanced standards for all U.S. public company boards, management, and public accounting firms. Key provisions addressed certification of financial reports, corporate governance, internal control assessment, auditor independence, corporate responsibility, and enhanced financial disclosures.
Copyright:
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Download as DOC, PDF, TXT or read online from Scribd
The Sarbanes-Oxley Act was passed in 2002 in response to corporate accounting scandals to increase transparency and accuracy in corporate financial reporting. It established new or enhanced standards for all U.S. public company boards, management, and public accounting firms. Key provisions addressed certification of financial reports, corporate governance, internal control assessment, auditor independence, corporate responsibility, and enhanced financial disclosures.
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Introduction:
History After Enron entered bankruptcy in 2001 and cost thousands of investors millions of dollars, the government moved to ensure investors would be given accurate information to make informed decisions. Signed by President George W. Bush in July of 2002, the bill passed the Senate with a vote of 99 to 0 and the House 423 to 3. Titled the Public Company Acco unting Reform and Investor Protection Act of 2002, the act is more commonly known as Sarbanes-Oxley for the sponsors of the act--Sen. Paul Sarbanes and Rep. Michael G. Oxley. The Sarbanes-Oxley Act came into force in July 2002 and introduced major changes to the regulation of corporate governance and financial practice. It is named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main architects, and it set a number of non-negotiable deadlines for compliance.
The Sarbanes-Oxley Act is arranged into eleven 'titles'. As far as
compliance is concerned, the most important sections within these eleven titles are usually considered to be 302, 401, 404, 409, 802 and 906.
An over-arching public company accounting board was also
established by the act, which was introduced amidst a host of publicity.
The following pages cover the key Sarbanes-Oxley sections:
This section is listed under Title III of the act, and pertains to 'Corporate Responsibility for Financial Reports'.
Summary of Section 302
Periodic statutory financial reports are to include certifications that:
•The signing officers have reviewed the report
• The report does not contain any material untrue statements or material omission or be considered misleading
• The financial statements and related information fairly
present the financial condition and the results in all material respects • The signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings
• A list of all deficiencies in the internal controls and
information on any fraud that involves employees who are involved with internal activities • Any significant changes in internal controls or related factors that could have a negative impact on the internal controls Sarbanes-Oxley Act Section 401 This section is of course listed under Title IV of the act (Enhanced Financial Disclosures), and pertains to 'Disclosures in Periodic Reports'.
Summary of Section 401
Financial statements that are published by issuers are required to
be accurate and presented in a manner that does not contain incorrect statements or admit to state material information. These financial statements shall also include all material off-balance sheet liabilities, obligations or transactions. The Commission was required to study and report on the extent of off-balance transactions resulting transparent reporting. The Commission is also required to determine whether generally accepted accounting principals or other regulations result in open and meaningful reporting by issuers.
Sarbanes-Oxley Act Section 404
This section is listed under Title IV of the act (Enhanced Financial Disclosures), and pertains to 'Management Assessment of Internal Controls'.
Summary of Section 404
Issuers are required to publish information in their annual reports
concerning the scope and adequacy of the internal control structure and procedures for financial reporting. This statement shall also assess the effectiveness of such internal controls and procedures.
The registered accounting firm shall, in the same report, attest to
and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting. The Sarbanes-Oxley Act Section 409
This section is listed within Title IV of the act (Enhanced Financial
Disclosures), and pertains to 'Real Time Issuer Disclosures'.
Summary of Section 409
Issuers are required to disclose to the public, on an urgent basis,
information on material changes in their financial condition or operations. These disclosures are to be presented in terms that are easy to understand supported by trend and qualitative information of graphic presentations as appropriate.
Sarbanes-Oxley Act Section 802
This section is listed within Title VIII of the act (Corporate and Criminal Fraud Accountability), and pertains to 'Criminal Penalties for Altering Documents'.
Summary of Section 802
This section imposes penalties of fines and/or up to 20 years
imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation. This section also imposes penalties of fines and/or imprisonment up to 10 years on any accountant who knowingly and wilfully violates the requirements of maintenance of all audit or review papers for a period of 5 years
Sarbanes-Oxley Planning
Having studied the other pages on this website, even if you are considering using an external consultant or legal expert to help, it is well worth taking a few basic steps to enhance your position immediately. This not only demonstrates due diligence, but may well reduce the overall consultancy costs themselves. Self- compliance however, will almost certainly be the most common aproach, in which case it is important to ensure that nothing is left to chance.
One area that falls into the self-help category is perhaps security. In many respects security underpins some of the requirements of the Sarbanes-Oxley Act. It is therefore important to quickly establish a credible and detailed security policy, which can often be done readily via off the shelf packages.
Finally, perhaps the most important statement on the entire
website: do NOT put off until tomorrow what can be done today!
With other legislation and regulation we have seen organizations
leave compliance until the last few days far too often, and subsequently suffer adverse consequences.
Section 906
Section 906 details the chief executive officer's responsibility to
submit written statements along with the periodic financial reports. It states that, "each periodic report containing financial statements ... shall be accompanied by a written statement by the chief executive officer and chief financial officer (or equivalent thereof) of the issuer." The written statements are intended to certify that the reports "fairly presents in all material respects, the financial condition and results of operations of the issuer."
Features Along with the required written statements issued by executive officers, Section 906 details possible criminal penalties. Executives who submit reports not in compliance with the act are able to be fined up to $1 million or imprisoned for not more than 10 years, or both. Executives who willfully submit such statements are subject to possible fines up to $5 million and imprisonment of no more than 20 years, or both. Significance By requiring written statements corroborating the financial reporting, the law places accountability for these disclosures on the shoulders of the executives.
