Sarbanes – Oxley Act of 2002Also known as - Public Company Accounting Reform and

Investor Protection Act” in the Senate. - Corporate and Auditing Accountability and

Responsibility Act” in the House. Commonly called as Sarbanes-Oxley, Sarbox

or SOX. Enacted on July 30, 2002 and named after

sponsors, U.S. Senator Paul Sarbanes and U.S. Representative Michael G. Oxley.

Reasons for Sarbanes – Oxley Act

Reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International and WorldCom.

To bolster accounting, internal control and auditing standards at public corporations to protect investors

Enhance corporate internal auditing and financial reporting control mechanisms to easily detect fraud

Restore the public confidence in both public accounting and publicly traded securities.

Assure ethical business practices through heightened levels of awareness and accountability

Reasons for Sarbanes-Oxley ActIncludes reforms in corporate governance and

the accounting profession intended to: - Improve corporate financial reporting and

internal control - Strengthen audit committees - Change the relationship between the auditor

and client - Improve auditor independence - Provide additional auditor assurance over

internal control - Provide oversight and regulation for auditors

of publicly traded companies.

Major Elements1.Public Company Accounting Oversight Board

(PCAOB)2.Auditor Independence3.Corporate Responsibility4.Enhanced Financial Disclosures5.Analyst Conflicts6.Commission Resources and Authority7.Studies and Reports8.Corporate and Criminal Fraud Accountability9.White Collar Crime Penalty Enhancement10.Corporate Tax Return11.Corporate Fraud Accountability

1.Public Company Accounting Oversight Board (PCAOB)Title 1Provide Independent Public Accounting Firms

Audit Services (Auditors)register public accounting firms that prepare audit

reports for issuers.set auditing, quality control, ethics, independence

and other standards relating to the preparation of audit reports of issuers

set auditing, quality control, ethics, independence and other standards relating to the preparation of audit reports of issuers

2.Auditor IndependenceTitle IIEstablishes Standards for External Auditor

IndependenceAddress new Auditor Approval RequirementsAuditor Reporting RequirementsRestricts Auditing firms from Providing non-Audit

services (e.g Consulting) for same clients

3.Corporate ResponsibilityTitle IIIMandates That Senior Executives Take

Responsibility for Accuracy & Completeness of CFR’s.

Interaction of External Auditors & Corporate Audit Committee

Penalties for Non-Compliance

4.Enhanced Financial DisclosuresTitle IVIt describe Enhanced Reporting

RequirementsOff-balance Sheet TransactionsPro-forma FiguresStock TransactionsIt Requires Timely Reporting of Material in

Financial Condition

5.Analyst Conflicts of InterestTitle VIt Includes Measures & Designed To help

Restore InvestorIt defines Codes of Conduct for Securities

analystsDisclosure of Knowable ThingsTo Facilitate Investor

6.Commission Resources And AuthorityTitle VIDefines Practices to restore Investor

Confidence Securities Analysts.It also Defines The SEC’s AuthorityTo Stop Those Professionals Who Which don't

follow the Predefine ConditionsBrokerDealerAdvisor

7.Studies And ReportsRequires The Comptroller General And SEC

to Perform Various Studies and Report Their Findings

Studies And Reports Include The Effects of Consolidation of Public Accounting firms

The Role of Credit Rating Agencies In the Operation of Securities Markets

Securities Violations and enforcement Actions

 

8.Corporate And Criminal Fraud Accountability

Title VIIIIt Refers To The “Corporate and Criminal

Fraud Accountability Act”It Describes Specific Criminal Penalties for

Manipulation, Destruction of Financial Records

OR Other Interference With Investigations, While Providing Certain Protections for Whistle-Blowers

9.White Collar Crime Penalty EnhancementTitle IXThis Section is Also Called “White Collar

Crime Penalty Enhancement Act”.This Section Increases The Criminal Penalties

associated with White Collar Crimes & Conspiracies

It Recommends & Specifically adds Failure to Certify Corporate Reports as a Criminal Offense

10.Corporate Tax ReturnTitle XThe Chief Executive Office Should Sign The

Company Tax Return

11.Corporate Fraud AccountabilityTitle IXIt Identifies Corporate Fraud & Records

Tampering as Criminal Offense And Joins those Offenses To Specific Penalties

The SEC To Restore To Temporarily Freezing Transactions or Payments That have been deemed “Large” or “unusual”

Sox Act SectionsSox Section 302Sox Section 401Sox Section 404Sox Section 409Sox Section 802Sox Section 906

Sox Section 302:Disclosure of ControlsThe Act Mandates a set of Internal

Procedures Designed to ensure Accurate financial Disclosure

The Signing officers Must Certify that they are “Responsible for Establishing & Maintaining Internal Controls” & “Have Designed such controls to ensure that material Information relating to the Company & its Consolidated Subsidiaries is made known to such officers by others within those entities, Particularly during the period in which the Periodic Reports are Being Prepared

External Auditors Opinion

Sox Section 401:Disclosures In Periodic Reports (Off-Balance Sheet Items)

All materials of of-Balance Sheet Items must be Disclose

To Follow the Accounting Principles

Sox Section 404:Assessment of Internal Control

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.

Sox 409:Enhanced Financial DisclosuresIssuers 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.

Sox Section 802:Criminal Penalties for Influencing US Agency

Investigation/Proper AdministrationThis section imposes penalties of fines and/or

up to 20 years imprisonment for 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.

Sox Section 902:Criminal Penalties for CEO/CFO Financial Statement

CertificationCertification of Periodic ReportsWhen any Executive (CEO/CFO) Certify any

Discomfort Statements……Fines$1000000 (1 Million $)$5000000 (5 Million $)Imprisoned 20 years$5000000 (5 Million $) Imprisoned 20

Years=Both