SOX

Question 1

What is SOX?

Answer 1

• Sarbanes-Oxley Act of 2002 (SOX)
• Was passed by the US Congress to protect the public from fraudulent or erroneous practices by corporations or other business entities.

Question 2

What is the main goal of SOX?

Answer 2

• To protect investors and the public by improving the accuracy and reliability of corporate disclosures by:
  1. Increasing transparency in financial reporting
  2. Requiring formalized systems for internal controls.
  3. Increasing the severity of penalties for fraudulent activities

Question 3

Who are the two main organizations responsible for implementing SOX?

Answer 3

1. Securities and Exchange Commission (SEC)
2. Public Company Accounting Oversight Board (PCAOB).

Question 4

What is the SEC is responsible for in regards to SOX?

Answer 4

Enforcing the act.
(example -One of these rules is that all public companies have to hire independent auditors to verify their accounting practices.)

Question 5

What is PCAOB’s role in regards to SOX?

Answer 5

• PCAOB was created to oversee SOX audits
• All accounting firms that perform audits for public companies are required to register with the PCAOB.

Question 6

Section 404 of the SOX Act of 2002

Answer 6

requires that management and auditors establish internal controls and reporting methods to ensure the adequacy of those controls.

Question 7

Section 302 of the SOX Act of 2002

Answer 7

mandates that senior corporate officers personally certify in writing that the company’s financial statements comply with SEC disclosure requirements and “fairly present in all material respects the financial condition and results of operations of the issuer” at the time of the financial report. Officers who sign off on financial statements that they know to be inaccurate are subject to criminal penalties, including prison terms.

Question 8

Section 802 of the SOX Act of 2002

Answer 8

contains the three rules that affect recordkeeping. The first deals with destruction and falsification of records. The second strictly defines the retention period for storing records. The third rule outlines the specific business records that companies need to store, which includes electronic communications.

Question 9

Securities Exchange Act of 1934

Answer 9

Congress created the Securities and Exchange Commission. The Act empowers the SEC with broad authority over all aspects of the securities industry. This includes the power to register, regulate, and oversee brokerage firms, transfer agents, and clearing agencies as well as the nation’s securities self regulatory organizations (SROs). The various securities exchanges, such as the New York Stock Exchange, the NASDAQ Stock Market, and the Chicago Board of Options are SROs. The Financial Industry Regulatory Authority (FINRA) is also an SRO.

The Act also identifies and prohibits certain types of conduct in the markets and provides the Commission with disciplinary powers over regulated entities and persons associated with them.

The Act also empowers the SEC to require periodic reporting of information by companies with publicly traded securities.