Compliance with Sarbanes Oxley
Compliance with Sarbanes Oxley
The Sarbanes-Oxley (SOX), also known as the Public Company Accounting Reform and Investor Protection Act of 2002, was legalized by George Bush in 2002 and was formally effective in November 2002.
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The act’s main intention is to protect investors from fraudulent and misleading activities of the companies in whom they may invest and it was created as a direct result of scandals such as Enron. Sarbanes Oxley is divided into 11 sections. These sections clarify the rules and expectations of the legislation and its governance - Compliance with Sarbanes Oxley introduction. One of the most important features of the SOX act is that Senior Officers are now responsible for the culture they create. This provision forces the CEO’s and CFO’s to be accountable for the ethical and moral behaviors of their employees. They can no longer turn a blind eye and later claim to know nothing of what has been happening. Of the eleven acts in the paper, six of them are related to the actions that companies need to make to comply with the legislation. These are as follows:
Sections 101-109: Public Company Accounting Oversight Board
Sections 201-209 Auditor independence
Sections 301-308 Corporate responsibilities for financial reporting and audit
Sections 401- 409 Enhanced financial disclosures (Sections 401-409)
Sections 207 and 701-705 Studies by SEC, GAO, and Comptroller General (Sections
Sections 801-807, 901-906 and 1101, 1107 Revisions to laws for fraud and violations of securities law. (Sarbanes Act, 2002).
These rules are administered by the Security and Exchange Commission (SEC) who are responsible for the determination of the timescales and rules for its compliance. Failure to comply could have serious consequences; “Sarbanes-Oxley also holds chief executives and chief financial officers directly responsible for the accuracy of financial statements” (Fass, 2003). In serious cases, any CEOs or CFOs who have proven to be negligent and failed to comply with the act can face imprisonment. Provisions have been put in place to ensure that these people have the appropriate support to comply. Every company is required to have at least five members who have been rated to be “financially literate”, at least two of whom are certified accountants and the remaining three must not have, or cannot have been, CPAs.
Another prominent feature of the act is aimed at protecting people who wish to report fraudulent or unethical behavior in their company but may be afraid to do so (“whistleblowers”).
One of the biggest impacts of the act has been felt as a result of the archival requirements of the act. Companies are now required to follow set rules for the storage and maintenance of company documents. The intention of this is to ensure that there is a clear audit trail by which the behavior and actions of the company can be analyzed at a later date. As part of this all activity communication between traders should be transparent and communications methods such as email and Instant Messaging programmes are required to be secured and can also be audited.
Sarbanes-Oxley Act of 2002. 107 Cong., 2nd sess. 2004.
Fass, A One-year later, The impact on Sarbanes-Oxley. 07/22/03. Retrieved September 19, 2008 from <http://www.forbes.com/2003/07/22/cz_af_0722sarbanes.html>