You Have Been Assigned to Train New Consultants on the Impact of the Sarbanes-Oxley Act

HISTORY

Numerous corporate and accounting scandals inUnited States caused the passing of the SOX. In order to gain the confidence and trust of the public over companies, Michael Oxley introduced the proposals for reforms in securities laws. At the same time, Sarbanes submitted the proposal for passing of the bill. The differences between Sarbane’s bill and Oxley’s bill addressed by a committee. Finally the committee approved the bill on July 24, 2002 namely Sarbanes-Oxley Act of 2002.

OBJECT OF THE ACT

The object of the Sarbanes-Oxley Act is to protect the investors by improving the accuracy and reliability of corporate disclosures in connection with securities laws.

ADDITIONAL POWERS TO SEC

The Sarbanes-Oxley Act i.e. SOX or SarbOx passed in the year of 2002 and the Act was designed to review legislative and audit requirements. More particularly additional powers have been entrusted by the SOX to the U.S.Securities and Exchange Commission. As a result of significant changes in Securities Laws, the Sarbanes Oxley Act established.

APPLICABILITY

The SOX is applicable to all public companies in the United States. Besides the Act also applicable to international companies who have registered equity or debt securities with the Securities and Exchange commission. Typically the accounting firms who are providing audit services to such companies also come under the purview of Sarbanes-Oxley Act.

LIABILITY OF CEO AND CFO

Sarbanes-Oxley Act mainly intended to secure financial disclosures to prevent accounting fraud in the corporate sector. The Act created new standards for corporate accountability and also provided penalties for wrongdoing in the sector. Accordingly, the CEO and CFO cannot escape from the liability for non complying the accuracy in financial statements. Therefore the persons must adhere the new financial reporting responsibilities, new internal controls and procedures those are established the Sarbanes-Oxley Act.

Public Company Accounting Oversight Board

The U.S.Public Company boards, management and public accounting firm must ensure the compliance of the SOX in connection with the issues of Auditor independence, corporate responsibility. As per the recommendations of Act, Public Company Accounting Oversight Board is established for which the Securities and Exchange Commission will oversee the issues of pubic accounting firms and accounting standards. In fact, the Sarbanes-Oxley Act is a set of new standards for the corporate accountability and governance.

COMPLIANCE

The Sarbanes-Oxley Act consists of eleven titles. As far as compliance part, the important sections are 302, 401, 404, 409, 802 and 906.

USE OF OUTSOURCING OF INTERNAL AUDIT

Under Section 404 of Sarbanes-Oxley Act, the companies must report the internal controls of its financial reporting. While disclosing, the companies should not utilize outsourcing of such internal audit work to the external auditor of the company.

PENALTIES

Wrong certification by CEO or CFO will lead to fine up to $1 million and an imprisonmentup to ten years. In case of willful wrong certification, the fine can be increased to $5 million with an imprisonment up to twenty years.

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