The Sarbanes-Oxley Act is administered by the Securities and Exchange Commission (SEC). The SEC publishes rules and requirements, and sets deadlines for compliance. The Act states that all business records need to be kept for at least five years. If a company does not comply, it can be hit with fines, imprisonment, or both. The regulations apply to the IT departments, in regard to the storage of the companyís electronic records, as well as to the financial part of the company.
The legislation does not apply to private companies. It does apply to all U.S. public company boards and management, as well as to public accounting firms. Established as a result of SOX is the Public Company Accounting Oversight Board, or PCAOB. The PCAOB is in charge of regulating, overseeing, inspecting, and disciplining accounting firms when auditing public companies.
One portion of the Act deals with standards for external auditor independence, in order to limit conflicts of interest. Also included are new auditor approval requirements, auditor reporting requirements, and an audit partner rotation policy. Another portion of the Act states that senior executives are to assume individual responsibility for the accuracy and completeness of the corporationís financial reports.
There is a portion of the Act dealing with enhanced financial disclosures. This part dictates enhanced reporting requirements for financial transactions, including off-balance sheet transactions, stock transactions of corporate officers, and pro-forma figures. Another portion of the Act defines the code of conduct for securities analysts and requires that they disclose known conflicts of interest. Another part deals with the SECís authority to bar or censure securities professionals from practice and defines conditions under which barring or censure can occur.
Another portion of the Act deals with research being done for enforcing actions against violations by SEC registered companies and auditors. Yet another portion of the Act deals with corporate and criminal fraud, laying out specific criminal penalties for fraud by manipulation, destruction, or alteration of financial records, or interference with investigations. There is also some information about protection for whistle-blowers. Another part deals with increased criminal penalties for white-collar crimes and conspiracies. Another portion of the Act simply states that the company tax return must be signed by the Chief Executive Officer. The final portion of the Act states that corporate fraud and tampering with records are criminal offenses and describes the specific penalties.
It is obviously very important, if not critical, for companies and accounting firms to comply with SOX. The penalties for non-compliance can be severe. It is not difficult to comply with the legislation, but the documentation of the procedures required can be tedious.
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