The Sarbanes-Oxley Act was enacted on July 30, 2002 and was conceived to improve the public’s confidence in the capital markets of the United States. It was enacted “as a reaction to a number of major corporate accounting scandals” according to Wikipedia Encyclopedia.
The Sarbanes-Oxley Act of 2002
On July 30, 2002, the President signed The Sarbanes-Oxley Act into law. The act was named after the primary sponsors, U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). Sarbox, as it is sometimes called, is a federal law enacted to help rebuild the public’s confidence in U.S. capital markets after corporate scandals of companies such as Enron, WorldCom and Global Crossing. According to the Conference of State Bank supervisors “most of the provisions of this new law only apply to public companies that file for a 10-K with the Securities and Exchange Commission, their auditors, and securities analysts.”
The law establishes a five member Public Company Accounting Oversight Board (PCAOB) (with general oversight by the SEC). This board monitors public companies and establishes standards and rules to be followed by auditors and to standardize how public companies report the corporate financial information. The law also requires signatures of corporate officers who are held responsible for the information contained in the financial reports and provides punishment, including imprisonment, for falsifying the information.
The five most important sections of the act with regards to compliance are: 302, 401, 404, 802, and 906. Section 302 pertains to signing officers verifying the accuracy of the data and that the data portrays the actual financial condition of the company. Section 401 requires that financial statements are accurate and do not contain false statements. This section also deals with off-balance sheet liabilities. Section 404 requires information to be published in annual reports... [continues]
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