The Sarbanes-Oxley Act of 2002 came into force on 30 July 2002. It is commonly called SOX or Sarbox. It is a United States federal law passed in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, and world Com. These scandals resulted in a decline of public trust in accounting and reporting practices. It is named on sponsors Senator Paul Sarbanes and Representatives Michael G. Oxley. The legislation establishes new or enhanced standards for all U.S. public company boards, management, and public accounting firms. The act established corporate accountability and civil & criminal penalties for white collar crimes. The Act contains 11 titles, and sections.
MAJOR PROVISIONS OF SARBANES-OXLEY ACT'S [N10(new): 5M]
(i) Creation of the Public Company Accounting Oversight Board (PCAOB), (ii) Requirement that public companies evaluate and disclose the effectiveness of their internal controls and "Attests" such disclosure by independent auditor, (iii) Certification of financial reports by CEO & CFO,
(iv) Auditor independence, including bans on certain types of work for audit clients, (v) Companies listed on stock exchanges must have fully independent audit committees, (vi) Ban on most personal loans to any executive officer or director, (vii) Accelerated reporting of insider trading,
(viii) Additional disclosure,
(ix) Enhanced criminal and civil penalties for violations of securities law. For E.g. : Maximum jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements, (x) Employee protections allowing corporate fraud.
VARIOUS PROVISIONS OF THE ACT
Public Company Accounting Oversight Board (PCAOB): It is an independent private board, to regulate the accounting profession and establishing Public confidence in the 'Report of independent Registered Public Account Firm'. The PCAOB requires the Public Accounting Firms to register with the Board and to follow certain regulations for audit of Public Companies. Title II
Securities Exchange Board (SEC) was entrusted to issue rule implementing several of the provisions of Sarbanes Oxley Act, Comply with the PCAOB rules and regulation,
Enhance the rights, duties and responsibilities of the Audit Committee. Title III Corporate Responsibility [N08 (new): 4M, N11: 3M] Audit Committee to be more independent and one of the member to be "Financial Expert", CEO and CFO require to issue certification of quarterly financial results and annual reports to SEC, Provides rules of conduct for company’s management and their officers regarding pension matters, To comply with the Securities and Exchange Board rules that requiring attorneys to report violations of securities laws to the company's CEO or Chief Legal Counsel and to Audit Committee if no action is taken. Title IV
Obligatory for the companies to provide objective and transparency in disclosure of and financial results established effectiveness of internal control systems, Disclose the corporate mission statement and corporate ethics and their implementation, Disclosure by CEO, directors, management of the company and principal stockholders involving company securities. Title V
Conflict of Interest: Declaration by Securities Exchange Committee (SEC) of rules to address conflicts of interest arising when securities analysis recommend equity securities buying and selling in their Research Report and announcement to public. Title VI
Commission Resources and Authority:
To provide additional funding to SEC.
Power to SEC and federal courts to censure and impose prohibitions on persons and corporate entities. Title VII
Studies and Reports:
Federal regulatory bodies to conduct studies regarding accounting firms, Credit Rating Agencies, violation of laws, rules and regulations. Title VIII Corporate and Criminal Fraud...
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