Sarbanes Oxley Act of 2002

More aspects of Sarbanes-Oxley

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The Sarbanes-Oxley Act is a piece of legislation that combines Bills written by Senators Paul Sarbanes (D-MD) and Michael G. Oxley (R-OH) that addressed corporate auditing accountability and reporting practices. Simply put, it comprises regulations intended to control financial abuses at large public companies. The law now requires that companies boost their accounting oversight and adopt strict internal controls.

The full text of the Sarbanes-Oxley Act is lengthy. A few quick focal points are:

• Section 101 - Establishment of the Public Accounting Oversight Board (PCAOB) and Board Membership
• Section 102(a) - Public Accounting Firm Mandatory Registration
• Section 107 – SEC has authority over the PCAOB
• Section 201 - Services Outside The Scope Of Practice Of Auditors; Prohibited Activities
• Section 301 - "Whistleblower" procedure
• Section 402(a) - Prohibition on Personal Loans to Executives
• Section 404 - Internal controls
• Section 409 - Real-time disclosure
• Section 807 - Criminal penalties for defrauding shareholders of publicly traded companies
• Section 1350 - Failure of corporate officers to certify financial reports

Sarbanes-Oxley has passed into the vernacular as Sarbox or SOX and has come to the forefront of many CEO and CFO tasklists. Besides the beneficial, protective effects of SarbOx, the Act’s certification requirements have also had other less-predicted effects. For example, CFOs may be reluctant to join a company and be prepared to certify its past financial statements, being criminally liable for any inaccuracies. Some smaller companies have considered returning the business to private operations to avoid the cost of Sarbannes-Oxley compliance. Adhering to SOX rules can be time-consuming and expensive, many times without a clear return on investment. The SarbOx Act itself does not include best practices for complying with its rules. Internal guidelines must set by the company. There is no simple guide to Sarbanes-Oxley.

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