Sarbanes Oxley Act,2002

8/9/2019 Sarbanes Oxley Act,2002

1/13


2/13

A United States federal law Enacted on July 30, 2002

Also known as the 'Public Company Accounting Reform and

Investor Protection Act' (in the Senate) and 'Corporate and

Auditing Accountability and Responsibility Act' (inthe House)

Was enacted as a reaction to a number of major corporate

and accounting scandals including those

affecting Enron, Tyco International, Adelphia, PeregrineSystems and WorldCom.


3/13

These scandals, which cost investors billions of dollarswhen the share prices of affected companies collapsed,shook public confidence in the nation's securities markets.

The legislation set new or enhanced standards for allU.S. public company boards, management and publicaccounting firms.

It does not apply to privately held companies.

The act contains 11 titles, or sections, ranging fromadditional corporate board responsibilities to criminalpenalties, and requires the Securities and ExchangeCommission (SEC) to implement rulings on requirements tocomply with the new law.


4/13

Harvey Pitt, the 26th chairman of the Securities and

Exchange Commission (SEC), led the SEC in the adoption of

dozens of rules to implement the SarbanesOxley Act.

It created a new, quasi-public agency, the Public CompanyAccounting Oversight Board, or PCAOB, charged with

overseeing, regulating, inspecting and disciplining

accounting firms in their roles as auditors of public

companies.

The act also covers issues such

as auditor independence, corporate governance , internal

control assessment, and enhanced financial disclosure.


5/13

Debate continues over the perceived benefits and costs of

SOX.

Supporters contend the legislation was necessary and has

played a useful role in restoring public confidence in thenation's capital markets by, among other things,

strengthening corporate accounting controls.

Opponents of the bill claim it has reduced America's

international competitive edge against foreign financialservice providers, saying SOX has introduced an overly

complex regulatory environment into U.S. financial

markets.


6/13


7/13

Although the legislation's main focus is board governance andaccounting practices, the act's reach extends into a variety ofadministrative areas, including human resources.

Legal and HR experts said human resource departments will

have to handle several new responsibilities as a result ofSarbanes-Oxley, but they also acknowledged that its full reachis still unknown.

The HR department, for example, will be involved duringperiods when employees can't trade company stock held in

their accounts; under the act, there must be advance noticeof blackout periods.

HR personnel will not only have to put together thenotification, they'll most likely coordinate the company'scompliance with this section of the act.


8/13

HR officers will also be directly involved with decisions on

executive compensation, which under Sarbanes-Oxley

cannot include the extension of credit in the form of a

personal loan.

However, legal experts said, it's unclear how far-reaching

that prohibition is. HR people will have to examine such

programs as split-dollar life insurance to determine

whether they're banned under the 2002 act.

Sarbanes-Oxley doesn't have that many direct impacts on

benefits -- the blackout and the loan impact -- but the

broader impact is to what degree companies will look at

governance procedures for their benefit plans


9/13

Many companies, both public and private, are examining

the governance of their benefit plans --who is in charge

and what are the liabilities, for example.

There could be hundreds of millions of dollars at risk,which means that if there's mismanagement of assets,

there could be hundreds of millions of dollars in liability.

HR departments, knowing that corporate directors are

asking these questions, are often teaming up with finance

departments to conduct this review.


10/13

Sarbanes-Oxley also prohibits retaliation against workers

who report suspicious accounting and financial-reporting

practices.

With no details on how to enforce such a prohibition, HRpeople are left to rethink corporate rules and procedures.

So the issue for the HR person is to be available as a

source for people to go to with complaints and to conduct

an investigation in a discreet but as thorough a way aspossible."


11/13

Sarbanes-Oxley allows employees to complain to someoneinternally as well as to law enforcement agencies,Congress or congressional committees about possiblefinancial misconduct

HR officials will be well served to draft policies outlininghow an employee should lodge a complaint.

Beyond that, HR staff members will likely find themselvesworking with legal counsel to draft explicit policies about

how the employees will be protected in cases whereworkers blow the whistle.

HR officials might also find themselves mediatingcomplaints.


12/13

HR people are going to have some very specific procedures

... to receive, retain and treat complaints that they

receive about accounting or auditing matters, and in

addition, they must have some mechanism to get

anonymous, confidential comments and concerns

Experts also acknowledged that Sarbanes-Oxley certainly

took accountability higher than it would have been without

such an act.

Sarbanes-Oxley has really raised the bar for corporate

activity


13/13

Sarbanes Oxley Act,2002

Documents

Transcript of Sarbanes Oxley Act,2002