SOX of 2002 - Enhanced Financial Disclosures

Question 1

Disclosures should be made regarding

Answer 1

Financial Statements

Internal Controls

Operation of Audit Committee

Question 2

Goal of enhanced financial disclosures

Answer 2

Make F/S More Transparent

Question 3

All Material Correcting adjustments identified by the auditor

Answer 3

should be reflected in the Financial Statements

Question 4

Examples of Material Off Balance Sheet transactions that must be disclosed

Answer 4

Leases

Contingent Liabilities (Lawsuits)

Related Party Transactions (unconsolidated subs)

Special Purpose entities

Question 5

Internal Control Disclosures

Answer 5

1) Management is responsible for establishing and maintaining I/C and procedures for Financial reporting
2) Management’s Assessment of effectiveness of I/C (Auditor must certify management’s assessment)
3) Must disclosure if Code of Ethics is adopted for Senior Management. If no then must disclose the reason.

Question 6

Audit Committee Disclosures

Answer 6

If there is at least One Financial Expert. If not then must disclose why.

Question 7

Reason for financial expert

Answer 7

can resolve disputes between Auditor and Management

Question 8

Who can be a financial expert?

Answer 8

Knowledge of GAAP
Application of GAAP
Experience with Internal Control
Understand of Audit Committee Functions
Experience in Preparation of Audited F/S

Question 9

SEC is required to review disclosures. The issuers that get reviewed more frequently are Issuers

Answer 9

That issued material restatements

that have significant volatile stock prices

with the largest market capitalization

differences (disparities) in price to earnings ratios

that are too big to fail (banks, insurance companies)