sarbanesOxleyAct_Group5

8/11/2019 sarbanesOxleyAct_Group5

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Introduction

SOX was signed into law July 30, 2002 to protec

improving the reliability and accuracy of disclos

pursuant to the securities laws.

SOX is also known as 'Public Company Account

and Investor Protection Act' (in the Senate) and

and Auditing Accountability and Responsibility

It was named after sponsors U.S. Senator Paul S

MD) and U.S. Representative Michael G. Oxley


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Objectives

In response to the Arthur Anderson, Enron and WorldCom

Sarbanes-Oxley Act seeks to:

Restore the public confidence in both public accountin

traded securities

Assure ethical business practices through heightened l

awareness and accountability.


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To Whom Does SOX Apply?

SOX is generally applicable to all companies, regardless required to file reports with the SEC under the 1934 Ac

registration statement on file under the 1933 Act.

Certain SOX provisions apply only to companies listed

securities exchange.

Small business issuers that file reports on Form 10-QSB an

are generally subject to SOX in the same way as larger comp


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Public Company Accounting Oversig

SOX established the creation of the PCAOB to o

of public companies that are subject to the secur

Created as a non-profit organization, the 5

oversees audits of public companies; it is under

the sec but above other professional accountin

such as the AICPA.


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Provisions of PCAOB

To make rules governing audits of public companies

To make rules governing audits of public companies

To oversee audits and audit firms

Independent of federal government

Self-funded through fees assessed on CPA firms

traded companies

Regulations not applicable to not for profit or s

listed companies


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PCAOB Duties

Write audit standards, temporarily they have adopted th

Register public CPA firms to do audits

Set Quality Control standards for audits

Do peer reviews of CPA firmsat least every three years

Investigate and discipline

Set Continuing Professional Education requirements for

Review company disclosures and financial statements at

years


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PCAOB Governing Members


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Auditor Independence

Pursuant to SOX, the SEC has auditor independence requirements th

all public companies, regardless of size, and include the following:

Prohibition of certain non-audit services;

Requirement of audit committee pre-approval of all audit and non-

Audit partner rotation;

Auditor reports to the audit committee;

Certain prohibited employment relationships;

Prohibited compensation.


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Enhancing

Financial

Disclosure

Disclosures in periodic rep

Enhanced conflict of inter

Disclosures involving manprincipal stockholders.


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Enhancing

FinancialDisclosure

Management assessment

controls.

Code of ethics.

Enhanced review of of pedisclosures and real time d


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Corporate

Responsibility

Board composition andindependence.

Audit committee requirem

CEO/CFO certification.


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Corporate

Responsibility

Improper auditor influenc

Insider trading requireme

Reimbursement requiremebars.


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Penalties


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White-collar Crime Penalty Enhanc

Financial statements filed with the SEC by any public company mus

CEOs and CFOs; all financials must fairly present the true condition

comply with SEC regulations.

Violations will result in fines less than or equal to $5 million and /o

20 years imprisonment.

Mail fraud/wire fraud convictions carry 20 year sentences (pr

sentences).

Anyone convicted of securities fraud may be banned by SEC

officer/director positions in public companies.


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Penalties

Corporate Officers

Give back to firms any bonuses, incentive

compensation or equity based compensation

earned within 12 months.

Give back profit on sales during blackout

period.

False certification - $1m and up to 10 yrs.

Willful false cert. - $5 m and up to 20 yrs.

Company can hold up any payments to

officers.

Audit Firms

Temporary suspension fro

Temporary or permanent

Cant go to another firm if

revoked.

Fines of up to $100,000 perviolation, firm up to $2 mi

If intentional up to $750,00

$15 millions.

Destroy working papers w

and up to 10 years.


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Corporate Fraud Accountability

Destroying or altering a document or record with the in

the objects integrity for the intended use in a secur

proceeding, or otherwise obstructing that proceeding, wil

a fine and/or up to 20 years imprisonment.

The SEC has the authority to freeze payments to a

involved in an investigation of a possible security violatio

Any retaliatory act against whistleblowers or other

subject to fine and/or 10 year imprisonment.


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Implementation of Key Provisions

Section 302: Disclosure controls.

Section 303: Improper Influence on Conduct of Audits.

Section 401: Disclosures in periodic reports (Off-balance sheet

Section 404: Assessment of internal controls.

Section 802: Criminal penalties for influencing US Agency inv

administration.

Section 906: Criminal Penalties for CEO/CFO financial stateme

Section 1107: Criminal penalties for retaliation against whistle b


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Criticism

An election year is not proper to overhaul a compl

securities regulation.

Simply follows headlines from Enron and others with li

for systemic problems.

The efforts of SEC and other SROs is not taken

Congress.

Little appreciation for markets` response to the scandals. Many provisions are simply delegations of authority to t

rules, some of them involve the SEC or the other SR

undertaken rulemaking initiatives.


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May cause long-term systemic harm to the competitivene

markets.

According to a study by a researcher at the Wharton Busi

number of American companies deregistering fromexchanges nearly tripled during the year after Sarbanes

law, while the New York Stock Exchange had only 10 new

in all of 2004.

Smaller international companies were more likely t

exchanges in the U.K. rather than U.S. stock exchanges.

During the financial crisis of 20072010, critics blamed

for the low number of Initial Public Offerings (IPOs) on

exchanges during 2008.

.


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Praises

Former federal reserve chairman Alan Greenspan praised the Sarb

2005 "the act importantly reinforced the principle that shareh

corporations and that corporate managers should be working on beha

to allocate business resources to their optimum use.

SEC chairman Christopher cox stated in 2007: "Sarbanesoxley help

U.S. Markets by increasing accountability, speeding up reporting, a

more independent.

Sarbanes oxley act has been praised for nurturing an ethical cultur

management to be transparent and employees to be responsible for

protecting whistleblowers.


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Legal Challenges

A lawsuit was filed in 2006 challenging the constitutionality of the PCAOB

The complaint argues that because the PCAOB has regulatory powers o

industry, its officers should be appointed by the President, rather than the

the United States Supreme Court unanimously turned away a broad chall

ruled 54 that a section related to appointments violates the Constitut

powers mandate. The act remains "fully operative as a law" pending a pro

the United States Supreme Court rejected a narrow reading of the S

protection and instead held that the anti-retaliation protection that the Sar

2002 provides to whistleblowers applies also to employees of a public

contractors and subcontractors.


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Conclusion

The Sarbanes-Oxley Act is perhaps the most far-reaching set

enforced rules since, the SEC Act

Sarbanes-Oxley makes it easier to prosecute securities fraud, parti

fraud.

One of the most direct ways in which the Act accomplishes this obj

greater responsibility on senior management and director

independent directors and audit committee members, by requiring

substantially more proactive role in overseeing and monitorin

reporting process, including disclosure and reporting systems and in


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Documents

sarbanesOxleyAct_Group5