Sarbanes-Oxley Act of 2002 Flashcards
The Sarbanes-Oxley Act of 2002 has had a profound effect on the financial reporting requirements of public companies
Title III and Title IV discuss provisions for expanded disclosures by corporations and specific representations required by officers of public companies that must accompany published financial statements; Title VIII and Title IX describe penalties for violating the act and Title XI covers guidelines for rules and punishments concerned with fraudulent corporate activities
Title III (corporate responsibility)
relates to the establishment of an audit committee and the representations made by key corporate officers (CEO and CFO)
public companies are responsible for establishing an audit committee that is directly responsible for the appointment, compensation, and oversight of the work of the public accounting firm employed by that public company (aka issuer)
audit committee members are to be members of the issuer’s board of directors but are to be otherwise independent (can’t accept compensation for consulting/advisory services and can’t be an affiliated person of the issuer –> influence financial decisions)
audit committees must establish procedures to accept reports of complaints as well as a method to address those complaints
CEO and CFO must sign certain representations regarding annual and quarterly reports stating that they reviewed the report, there are no untrue statements/omitted material, statements are presented fairly; they must also represent whether there have been any significant changes to internal controls
Title IV (enhanced financial disclosures)
includes additional details regarding the financial statements, internal controls, and the operations of the audit committee
issuers are generally prohibited from making personal loans to directors or executive officers; however, exceptions apply if the consumer credit loans are made in the ordinary course of business by the issuer or if the terms offered to the officer are generally made available to the public under similar terms and conditions with no preferential treatment
disclosures are required for persons who generally have direct or indirect ownership of more than 10% of any class of most any equity security; disclosures are made by filing a statement and that statement is filed at the following times: at the time of registration, when the person achieves 10% ownership, and if there has been a change in ownership
the assessment of internal controls is commonly referred to as Section 404; each annual report is required to contain a report that includes a statement that management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting and an assessment of the effectiveness of the internal control structure and procedures for financial reporting (the auditor must attest to management’s assessment of internal control)
issuers must disclose whether the issuer has adopted a code of conduct for senior officers; if no code of conduct has been adopted, the issuer must disclose the reasons; the code of ethics contemplates standards that promote honest and ethical conduct, full/fair/accurate/timely disclosures in periodic financial reports, and compliance with laws/rules/regulations; changes to or waivers from the code must be reported on Form 8-K
at least one member of the audit committee should be a financial expert; financial reports of the issuer must disclose the existence of a financial expert on the committee or the reasons why the committee does not have a member who is a financial expert
Title VIII (corporate and criminal fraud accountability)
individuals who alter, destroy, mutilate, conceal, cover up, falsify, or make false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence an investigation will be fined, imprisoned for not more than 20yrs, or both
auditors of issuers should retain all audit and review workpapers for a period of 7yrs from the end of the fiscal period in which the audit or review was conducted; failure to do so will result in a fine, imprisonment for not more than 10yrs, or both
an individual who knowingly executes, or attempts to execute, securities fraud will be fined, imprisoned not more than 25yrs, or both
Title IX (white-collar crime penalty enhancements)
an individual who attempts to commit any white-collar offense will be subject to the same penalties as those who commit the offense
any issuer periodic report which contains financial statements that are filed with the SEC must be accompanied by: a written statement that the periodic report fully complies with the Securities Exchange Act of 1934, a written statement that the information contained in the report fairly presents, in all material respects, the financial condition and operating results of the issuer, and the written statements above must be signed by the CEO and CFO of the issuer
Title XI (corporate fraud accountability)
any individual who alters, destroys, or conceals a document with the intent to modify the document and its integrity or the availability of the document in an official proceeding shall be fined and/or subject to not more than a 20yr prison term
