1.7.1 Sarbanes Oxley Act, 2002

Question 1

Why was the Sarbanes-Oxley Act (SOX) of 2002 passed by congress?

Answer 1

In an effort to restore investor confidence following a series of massive corporate frauds

Question 2

What does SOX of 2002 require?

Answer 2

This law requires publicly traded companies and their independent auditors to demonstrate to the Securities and Exchange Commission that their number are accurate and that they have process in place ensure accurate reporting

Question 3

Explain section 301

Answer 3

Requires the board of directors audit committee to establish and maintain a complaint system and an anti-retaliation statement that need to be communicated to employees and other interested parties, such as former employees and customers

Question 4

Explain section 306

Answer 4

• Contains two provision related to blackout period
• one that prohibits insider trading
• second that required at least 30 day advanced notice to employees of blackout periods

Question 5

What is a blackout period?

Answer 5

refers to a temporary time when stock trading is suspended, usually due to a change in benefits, providers

Question 6

Where does section 306 originate from?

Answer 6

its inability of Enron employees to sell their company stock during the time it was plummeting due to a blackout period as that company was changing benefits providers

Question 7

Explain section 402

Answer 7

• Bans personal loans to members of the board of directors and executive officers
• ban includes loans for home purchases or college tuition, loans to exercise stock options, and loans for split- dollars life insurance policies.
• ban does not apply to loans from an executive’s 401 (k) account or business travel advances

Question 8

Explain section 404

Answer 8

Required each annual report to contain an internal control report which shall…

1. state the responsibility of management for establishing and maintaining an adequate internal control structure and procedure for financial reporting
2. contain an assessment… of the effectiveness of the internal control structure procedures” for financial reporting

Question 9

Explain section 406

Answer 9

Requires firms to have a code of ethics for their executive officers that is designed to deter fraud and promote financial integrity. The code of ethics should endorse hones and