Sarbanes-Oxley Act of 2002

Sarbanes-Oxley Act of 2002, often referred to as SOX, is the most far reaching legislation since the Great Depression of the 1930s. Sox signed by President George Bush on July 30th 2002, was in response to the loss of confidence by American and foreign investors in publicly traded companies. The Act contains reforms intended to toughen provisions that deter and punish corporate and accounting fraud. SOX is designed to improve the quality of financial reporting by public corporations, hold auditing firms and corporate executives accountable. In an attempt to achieve the goals of Sox the Act created a Public Company Accounting Oversight Board to enforce accounting standards, ethics, and increase the competence of the accounting profession. It requires a greater degree of independence of firms that audit public corporations. Corporations are required to increase their responsibility in financial disclosures. SOX increased the penalties for the corporate executives for wrongdoing. The board has investigative and enforcement powers to oversee the accounting industry, with discipline authority. The board is comprises of five members, with only two being present or former CPAs. The appointment to the board is a full time position and no members are allowed to serve more than two terms. The boards various duties include but not be limited to the following: Have accounting firms that audit public corporations be registered. Create or adopt, auditing quality control, ethics, independence standards, and other standards for the preparation of audit reports.

Inspections of the registered accounting firms. Investigate accounting firms and public corporations that fail to comply with SOX, and impose appropriate sanctions when justified.

Establish and follow a budget for the board.

A review of some of the SOX sections, Section 301 requires the formation of an independent audit committee. The members of the committee are to be competent in their rules on the audit committee, be independent of the management of the corporation. The Audit Committee hires the audit firm, which will report to them directly. Section 302 makes the CEO and CFO certify the financial statements and hold them personally (criminal sanctions) responsible for the contents of the statement. Section 402 eliminates the corporation from makes personal loans to any of the directors of the corporation. Section 404 mandates that the audit report contain an internal control report. This section is often considered the most difficult section to comply with. The report must assess the effectiveness of the internal control procedures, and describe the code of ethics that the corporation implements. SOX also provides for procedure to be followed for the protection of whistle blowers. If retaliation acts are taken against whistle blowers the perpetrator will face criminal consequences. All organizations should implement procedures for employee

complaints in regards to accounting or financial management. An anonymous complaint process to report inappropriate management practices needs to be established and promoted by management to employees. The Sarbanes-Oxley Act passed with an overwhelming majority of the United States Congress. The bill prior to the scandals with corporations such as EXON, World Com was failing in the Congress. The mail intent of the bill is to restore public trust in American corporations and foreign corporations doing business in the United States.

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Reference Faulhaber, T. A. (n.d.). The emerging Company and the SEC. The Business Forum Online. Retrieved from www.businessforum.com/SEC01.html Sarbanes Oxley Basics. Sarbanes Oxley Basics. (n.d.). Retrieved from www.sarbanesoxleybasic.com Taking A Look At A Sarbanes Oxley. Taking A Look At A Sarbanes Oxley. (n.d.). Retrieved from www.dummies.com/how-to/content/takinga-look-at-a-sarbanesoxley-overview.html Securities Law Update. Securities Law Update. (n.d.). Retrieved from www.orrick.com/filesupload/144.pdf Zameeruddin , R. (n.d.). The Sarbanes-Oxley Act of 2002: An Overview, Analysis, and Caveats . Retrieved from www.westga.edu/~bquest/2003/auditlaw.htm Brief Summary of Sarbanes-Oxley Act of 2002. (n.d.). Retrieved from http://ocdc.osu.edu/pdf/Sarbanes.pdf