sarbanesoxleyact_group5
TRANSCRIPT
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Introduction
SOX was signed into law July 30, 2002 to protec
improving the reliability and accuracy of disclos
pursuant to the securities laws.
SOX is also known as 'Public Company Account
and Investor Protection Act' (in the Senate) and
and Auditing Accountability and Responsibility
It was named after sponsors U.S. Senator Paul S
MD) and U.S. Representative Michael G. Oxley
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Objectives
In response to the Arthur Anderson, Enron and WorldCom
Sarbanes-Oxley Act seeks to:
Restore the public confidence in both public accountin
traded securities
Assure ethical business practices through heightened l
awareness and accountability.
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To Whom Does SOX Apply?
SOX is generally applicable to all companies, regardless required to file reports with the SEC under the 1934 Ac
registration statement on file under the 1933 Act.
Certain SOX provisions apply only to companies listed
securities exchange.
Small business issuers that file reports on Form 10-QSB an
are generally subject to SOX in the same way as larger comp
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Public Company Accounting Oversig
SOX established the creation of the PCAOB to o
of public companies that are subject to the secur
Created as a non-profit organization, the 5
oversees audits of public companies; it is under
the sec but above other professional accountin
such as the AICPA.
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Provisions of PCAOB
To make rules governing audits of public companies
To make rules governing audits of public companies
To oversee audits and audit firms
Independent of federal government
Self-funded through fees assessed on CPA firms
traded companies
Regulations not applicable to not for profit or s
listed companies
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PCAOB Duties
Write audit standards, temporarily they have adopted th
Register public CPA firms to do audits
Set Quality Control standards for audits
Do peer reviews of CPA firmsat least every three years
Investigate and discipline
Set Continuing Professional Education requirements for
Review company disclosures and financial statements at
years
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PCAOB Governing Members
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Auditor Independence
Pursuant to SOX, the SEC has auditor independence requirements th
all public companies, regardless of size, and include the following:
Prohibition of certain non-audit services;
Requirement of audit committee pre-approval of all audit and non-
Audit partner rotation;
Auditor reports to the audit committee;
Certain prohibited employment relationships;
Prohibited compensation.
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Enhancing
Financial
Disclosure
Disclosures in periodic rep
Enhanced conflict of inter
Disclosures involving manprincipal stockholders.
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Enhancing
FinancialDisclosure
Management assessment
controls.
Code of ethics.
Enhanced review of of pedisclosures and real time d
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Corporate
Responsibility
Board composition andindependence.
Audit committee requirem
CEO/CFO certification.
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Corporate
Responsibility
Improper auditor influenc
Insider trading requireme
Reimbursement requiremebars.
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Penalties
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White-collar Crime Penalty Enhanc
Financial statements filed with the SEC by any public company mus
CEOs and CFOs; all financials must fairly present the true condition
comply with SEC regulations.
Violations will result in fines less than or equal to $5 million and /o
20 years imprisonment.
Mail fraud/wire fraud convictions carry 20 year sentences (pr
sentences).
Anyone convicted of securities fraud may be banned by SEC
officer/director positions in public companies.
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Penalties
Corporate Officers
Give back to firms any bonuses, incentive
compensation or equity based compensation
earned within 12 months.
Give back profit on sales during blackout
period.
False certification - $1m and up to 10 yrs.
Willful false cert. - $5 m and up to 20 yrs.
Company can hold up any payments to
officers.
Audit Firms
Temporary suspension fro
Temporary or permanent
Cant go to another firm if
revoked.
Fines of up to $100,000 perviolation, firm up to $2 mi
If intentional up to $750,00
$15 millions.
Destroy working papers w
and up to 10 years.
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Corporate Fraud Accountability
Destroying or altering a document or record with the in
the objects integrity for the intended use in a secur
proceeding, or otherwise obstructing that proceeding, wil
a fine and/or up to 20 years imprisonment.
The SEC has the authority to freeze payments to a
involved in an investigation of a possible security violatio
Any retaliatory act against whistleblowers or other
subject to fine and/or 10 year imprisonment.
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Implementation of Key Provisions
Section 302: Disclosure controls.
Section 303: Improper Influence on Conduct of Audits.
Section 401: Disclosures in periodic reports (Off-balance sheet
Section 404: Assessment of internal controls.
Section 802: Criminal penalties for influencing US Agency inv
administration.
Section 906: Criminal Penalties for CEO/CFO financial stateme
Section 1107: Criminal penalties for retaliation against whistle b
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Criticism
An election year is not proper to overhaul a compl
securities regulation.
Simply follows headlines from Enron and others with li
for systemic problems.
The efforts of SEC and other SROs is not taken
Congress.
Little appreciation for markets` response to the scandals. Many provisions are simply delegations of authority to t
rules, some of them involve the SEC or the other SR
undertaken rulemaking initiatives.
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May cause long-term systemic harm to the competitivene
markets.
According to a study by a researcher at the Wharton Busi
number of American companies deregistering fromexchanges nearly tripled during the year after Sarbanes
law, while the New York Stock Exchange had only 10 new
in all of 2004.
Smaller international companies were more likely t
exchanges in the U.K. rather than U.S. stock exchanges.
During the financial crisis of 20072010, critics blamed
for the low number of Initial Public Offerings (IPOs) on
exchanges during 2008.
.
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Praises
Former federal reserve chairman Alan Greenspan praised the Sarb
2005 "the act importantly reinforced the principle that shareh
corporations and that corporate managers should be working on beha
to allocate business resources to their optimum use.
SEC chairman Christopher cox stated in 2007: "Sarbanesoxley help
U.S. Markets by increasing accountability, speeding up reporting, a
more independent.
Sarbanes oxley act has been praised for nurturing an ethical cultur
management to be transparent and employees to be responsible for
protecting whistleblowers.
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Legal Challenges
A lawsuit was filed in 2006 challenging the constitutionality of the PCAOB
The complaint argues that because the PCAOB has regulatory powers o
industry, its officers should be appointed by the President, rather than the
the United States Supreme Court unanimously turned away a broad chall
ruled 54 that a section related to appointments violates the Constitut
powers mandate. The act remains "fully operative as a law" pending a pro
the United States Supreme Court rejected a narrow reading of the S
protection and instead held that the anti-retaliation protection that the Sar
2002 provides to whistleblowers applies also to employees of a public
contractors and subcontractors.
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Conclusion
The Sarbanes-Oxley Act is perhaps the most far-reaching set
enforced rules since, the SEC Act
Sarbanes-Oxley makes it easier to prosecute securities fraud, parti
fraud.
One of the most direct ways in which the Act accomplishes this obj
greater responsibility on senior management and director
independent directors and audit committee members, by requiring
substantially more proactive role in overseeing and monitorin
reporting process, including disclosure and reporting systems and in
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