The Sarbanes-Oxley Act
|
The Sarbanes-Oxley Act (SOX) became a law on July 30, 2003. Launched at a very crucial time, SOX was acclaimed as, “one of the most important pieces of legislation governing the behavior of accounting firms and financial markets since the SEC.” The act contains 11 sections, or titles, and almost 70 subsections covering every aspect of the financial management of businesses.
|
The Sarbanes-Oxley Act : 11 Sections
TITLE I:
PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD:
The series of financial collapses of publicly traded companies had the greatest negative impact on investor confidence. The creation of the Public Company Accounting Oversight Board (PCAOB) as an independent over- sight body was an attempt to reestablish standards and enforcing rules and disciplinary procedures for those organizations that found themselves out of compliance. All public accounting firms were required to register with the board and to abide by any operational standards set by that board.
TITLE II: AUDITOR INDEPENDENCE:
Some key directives for the independence of auditors to regain the public’s confidence for the auditors were added which:
1. Prohibits specific non-audit services.
2. Prohibits public accounting firms from providing audit services to any company whose senior officers were employed by that accounting firm.
3. Requires senior auditors to rotate after every 5 years.
4. Requires auditors to disclose all other written communications between management and themselves.
TITLES III THROUGH XI: the points under these titles are explained briefly.
Title III- CORPORATE RESPONSIBILITY:-
· Requires audit committees to be independent and undertake responsibilities.
· Requires CEO’s and CFO’s to certify the effectiveness and make presentation to show the auditors.
· Provides rules of conduct for companies and their officers regarding pension blackout periods.
Title IV-Enhanced Financial Disclosures: requires companies to provide enhanced disclosures including reports on internal effectiveness and the disclosures covering all kinds of off-balance sheet transactions.
Title V: Analyst Conflicts of Interest: Requires the SEC to adopt rules to address conflicts of interest that can arise during scandals.
Title VI: Commission Resources and Authority: Provides additional funding and authority to the SEC to follow through on all the new responsibilities outlined in the act.
Title VII: Studies and Reports: conducts studies regarding consolidation of accounting firms
Title VIII: Corporate and Criminal Fraud Accountability: provides tougher criminal penalty and protects those employees who provide evidence against the crime.
Title IX: White-Collar Crime Penalty Enhancements: White collar crimes will be treated as if the person had committed the crime. Requires CEO’s and CFO’s to certify those crimes and impose penalties.
Title X: Corporate Tax Returns: Conveys the sense of the Senate that the CEO should sign a company’s federal income tax return.
Title XI: Corporate Fraud and Accountability: Provides additional authority to regulatory bod- ies and courts to take various actions, including fines or imprisonment.
The series of financial collapses of publicly traded companies had the greatest negative impact on investor confidence. The creation of the Public Company Accounting Oversight Board (PCAOB) as an independent over- sight body was an attempt to reestablish standards and enforcing rules and disciplinary procedures for those organizations that found themselves out of compliance. All public accounting firms were required to register with the board and to abide by any operational standards set by that board.
TITLE II: AUDITOR INDEPENDENCE:
Some key directives for the independence of auditors to regain the public’s confidence for the auditors were added which:
1. Prohibits specific non-audit services.
2. Prohibits public accounting firms from providing audit services to any company whose senior officers were employed by that accounting firm.
3. Requires senior auditors to rotate after every 5 years.
4. Requires auditors to disclose all other written communications between management and themselves.
TITLES III THROUGH XI: the points under these titles are explained briefly.
Title III- CORPORATE RESPONSIBILITY:-
· Requires audit committees to be independent and undertake responsibilities.
· Requires CEO’s and CFO’s to certify the effectiveness and make presentation to show the auditors.
· Provides rules of conduct for companies and their officers regarding pension blackout periods.
Title IV-Enhanced Financial Disclosures: requires companies to provide enhanced disclosures including reports on internal effectiveness and the disclosures covering all kinds of off-balance sheet transactions.
Title V: Analyst Conflicts of Interest: Requires the SEC to adopt rules to address conflicts of interest that can arise during scandals.
Title VI: Commission Resources and Authority: Provides additional funding and authority to the SEC to follow through on all the new responsibilities outlined in the act.
Title VII: Studies and Reports: conducts studies regarding consolidation of accounting firms
Title VIII: Corporate and Criminal Fraud Accountability: provides tougher criminal penalty and protects those employees who provide evidence against the crime.
Title IX: White-Collar Crime Penalty Enhancements: White collar crimes will be treated as if the person had committed the crime. Requires CEO’s and CFO’s to certify those crimes and impose penalties.
Title X: Corporate Tax Returns: Conveys the sense of the Senate that the CEO should sign a company’s federal income tax return.
Title XI: Corporate Fraud and Accountability: Provides additional authority to regulatory bod- ies and courts to take various actions, including fines or imprisonment.
Ghillyer, A. 2014. Business Ethics Now: Chapter 6, The Role Of Government. United States of America: McGraw-Hill Education
Understanding the The Sarbanes-Oxley Act (YouTube). https://www.youtube.com/watch?v=wZ8xDBgMat8
Understanding the The Sarbanes-Oxley Act (YouTube). https://www.youtube.com/watch?v=wZ8xDBgMat8