Sarbanes-oxley .

• Sarbanes-oxley

https://store.theartofservice.com/the-sarbanes-oxley-toolkit.html

Corporate governance Sarbanes-Oxley Act of 2002

1 The Sarbanes-Oxley Act of 2002 was enacted in the wake of a series of high profile corporate scandals. It

established a series of requirements that affect corporate governance in the U.S. and influenced similar laws

in many other countries. The law required, along with many other

elements, that:



1 The Public Company Accounting Oversight Board (PCAOB) be

established to regulate the auditing profession, which had been self-

regulated prior to the law. Auditors are responsible for reviewing the

financial statements of corporations and issuing an opinion as to their

reliability.



1 The Chief Executive Officer (CEO) and Chief Financial Officer (CFO)

attest to the financial statements. Prior to the law, CEO's had claimed in

court they hadn't reviewed the information as part of their defense.



1 Board audit committees have members that are independent and disclose whether or not at least one is a financial expert, or reasons why

no such expert is on the audit committee.



1 External audit firms cannot provide certain types of consulting services and must rotate their lead partner every 5 years. Further, an audit firm cannot audit a company if those in specified senior management roles worked for the auditor in the past year. Prior to the law, there was the real or perceived conflict

of interest between providing an independent opinion on the accuracy and reliability of

financial statements when the same firm was also providing lucrative consulting services.


COBIT - COBIT and Sarbanes-Oxley

1 Companies that are publicly traded in the US are subject to the Sarbanes-Oxley Act of 2002. According to the

IIA, COBIT is one of the most commonly used frameworks to comply with Sarbanes-Oxley.


Information technology controls - IT controls and the Sarbanes-Oxley Act (SOX)

1 SOX requires the chief executive and chief financial officers of public companies to

attest to the accuracy of financial reports (Section 302) and require public companies to establish adequate internal controls over financial reporting (Section 404). Passage of

SOX resulted in an increased focus on IT controls, as these support financial

processing and therefore fall into the scope of management's assessment of internal control

under Section 404 of SOX.



1 The COBIT framework may be used to assist with SOX compliance,

although COBIT is considerably wider in scope



1 IT controls that typically fall under the scope of a SOX 404 assessment may include:



1 Specific application (transaction processing) control procedures that directly mitigate identified financial

reporting risks. There are typically a few such controls within major applications in each financial process, such as accounts payable, payroll, general ledger, etc. The

focus is on "key" controls (those that specifically address risks), not on the

entire application.



1 IT general controls that support the assertions that programs function as

intended and that key financial reports are reliable, primarily change

control and security controls;



1 IT operations controls, which ensure that problems with processing are identified and

corrected.



1 Specific activities that may occur to support the assessment of the key controls above

include:



1 Understanding the organization’s internal control program and its financial reporting

processes.



1 Identifying the IT systems involved in the initiation, authorization,

processing, summarization and reporting of financial data;



1 Designing and implementing controls designed to mitigate the identified

risks and monitoring them for continued effectiveness;



1 Documenting and testing IT controls;



1 Ensuring that IT controls are updated and changed, as necessary, to

correspond with changes in internal control or financial reporting

processes; and



1 While there are many IT systems operating within an organization, Sarbanes-Oxley compliance only

focuses on those that are associated with a significant account or related

business process and mitigate specific material financial risks



1 302 Corporate Responsibility for Financial Reports Certifies that

financial statement accuracy and operational activities have been

documented and provided to the CEO and CFO for certification



1 404 Management Assessment of Internal Controls Operational processes are

documented and practiced demonstrating the origins of data within the balance sheet.

SOX Section 404 (Sarbanes-Oxley Act Section 404) mandates that all publicly

traded companies must establish internal controls and procedures for financial

reporting and must document, test and maintain those controls and procedures to

ensure their effectiveness.https://store.theartofservice.com/the-sarbanes-oxley-toolkit.html


1 409 Real-time Issuer DisclosuresPublic companies must disclose

changes in their financial condition or operations in real time to protect

investors from delayed reporting of material events



1 802 Criminal Penalties for Altering Documents Requires public companies and their public

accounting firms to retain records, including electronic records that impact the company’s assets or

performance.



1 Fines and imprisonment for those who knowingly and willfully violate

this section with respect to (1) destruction, alteration, or falsification

of records in federal investigations and bankruptcy and (2) destruction

of corporate audit records.


Statement on Auditing Standards No. 70: Service Organizations - SAS 70 and Sarbanes-Oxley Act of 2002

1 With the introduction of the Sarbanes–Oxley Act of 2002 (SOX), SAS 70 took on increased

importance


Enterprise risk management - Sarbanes-Oxley Act requirements

1 Section 404 of the Sarbanes-Oxley Act of 2002 required U.S


Sarbanes-Oxley

1 The 'Sarbanes–Oxley Act of 2002' (), also known as the 'Public Company Accounting Reform and Investor Protection Act' (in the

United States Senate|Senate) and 'Corporate and Auditing Accountability and

Responsibility Act' (in the United States House of Representatives|House) and more commonly called 'Sarbanes–Oxley', 'Sarbox' or 'SOX', is a United States federal law that set new or enhanced standards for all U.S


Sarbanes-Oxley

1 The bill was enacted as a reaction to a number of major accounting scandals|

corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia Communications Corporation|

Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of affected

companies collapsed, shook public confidence in the US capital market|

securities markets.


Sarbanes-Oxley

1 The act contains 11 titles, or sections, ranging from additional

corporate board responsibilities to criminal penalties, and requires the

United States Securities and Exchange Commission|Securities and

Exchange Commission (SEC) to implement rulings on requirements

to comply with the law


Sarbanes-Oxley

1 The act was approved by the United States House of Representatives|House by a vote of and by the United States Senate|Senate with a vote of. President George W. Bush signed it into law, stating it included the most far-reaching reforms of American

business practices since the time of Franklin D. Roosevelt. The era of low standards and

false profits is over; no boardroom in America is above or beyond the law.


Sarbanes-Oxley

1 In response to the perception that stricter financial governance laws are

needed, SOX-type laws have been subsequently enacted in Japan,

Germany, France, Italy, Australia, Israel, India, South Africa, and Turkey.


Sarbanes-Oxley

1 Debate continues over the perceived benefits and costs of

SOX


Sarbanes-Oxley - Major elements

1 # 'Public Company Accounting

Oversight Board (PCAOB)'



1 #:Title I consists of nine sections and establishes the Public Company Accounting

Oversight Board, to provide independent oversight of public accounting firms providing

audit services (auditors). It also creates a central oversight board tasked with

registering auditors, defining the specific processes and procedures for compliance

audits, inspecting and policing conduct and quality control, and enforcing compliance

with the specific mandates of SOX.



1 # 'Auditor Independence'



1 #:Title II consists of nine sections and establishes standards for

external auditor independence, to limit conflicts of interest. It also addresses new auditor approval

requirements, audit partner rotation, and auditor reporting requirements. It restricts auditing companies from providing non-audit services (e.g., consulting) for the same clients.



1 #:Title III consists of eight sections and mandates that senior executives take 'individual responsibility' for the

accuracy and completeness of corporate financial reports



1 # 'Enhanced Financial

Disclosures'



1 #:Title IV consists of nine sections



1 #:Title V consists of only one section, which includes measures designed to

help restore investor confidence in the reporting of securities analysts. It

defines the codes of conduct for securities analysts and requires

disclosure of knowable conflicts of interest.



1 # 'Commission Resources and

Authority'



1 #:Title VI consists of four sections and defines practices to restore investor confidence in securities analysts. It also defines the SEC's

authority to censure or bar securities professionals from practice and

defines conditions under which a person can be barred from practicing

as a broker, advisor, or dealer.



1 # 'Studies and Reports'



1 #:Title VII consists of five sections and requires the Comptroller General

of the United States|Comptroller General and the SEC to perform various studies and report their

findings



1 # 'Corporate and Criminal Fraud Accountability'



1 #:Title VIII consists of seven sections and is also referred to as the Corporate and Criminal Fraud Accountability Act of 2002. It

describes specific criminal penalties for manipulation, destruction or alteration of financial records or

other interference with investigations, while providing certain protections for whistle-

blowers.https://store.theartofservice.com/the-sarbanes-oxley-toolkit.html


1 #:Title IX consists of six sections. This section is also called the White Collar Crime Penalty Enhancement Act of 2002. This section increases the criminal penalties associated

with white-collar crimes and conspiracies. It recommends stronger

sentencing guidelines and specifically adds failure to certify corporate financial reports as a

criminal offense.https://store.theartofservice.com/the-sarbanes-oxley-toolkit.html


1 #:Title X consists of one section. Section 1001 states that the Chief Executive Officer should sign the

company tax return.



1 # 'Corporate Fraud Accountability'



1 #:Title XI consists of seven sections. Section 1101 recommends a name for this title as

Corporate Fraud Accountability Act of 2002. It identifies corporate fraud and records tampering as criminal offenses and joins

those offenses to specific penalties. It also revises sentencing guidelines and

strengthens their penalties. This enables the SEC to resort to temporarily freezing transactions or payments that have been

deemed large or unusual.https://store.theartofservice.com/the-sarbanes-oxley-toolkit.html

Sarbanes-Oxley - History and context: events contributing to the adoption of Sarbanes–Oxley

1 A variety of complex factors created the conditions and culture in which a

series of large corporate frauds occurred between 2000–2002



1 *'Auditor conflicts of interest': Prior to SOX, auditing firms, the primary financial watchdogs for investors,

were self-regulated



1 *'Boardroom failures': Boards of Directors, specifically Audit Committees, are charged with establishing oversight mechanisms for

financial reporting in U.S. corporations on the behalf of investors. These scandals identified Board members who either did not exercise

their responsibilities or did not have the expertise to understand the complexities of

the businesses. In many cases, Audit Committee members were not truly

independent of management.



1 *'Securities analysts' conflicts of interest': The roles of securities analysts, who make buy and sell recommendations on company stocks and

bonds, and investment bankers, who help provide companies loans or handle mergers and acquisitions, provide opportunities for conflicts. Similar to the auditor conflict,

issuing a buy or sell recommendation on a stock while providing lucrative investment

banking services creates at least the appearance of a conflict of interest.



1 *'Inadequate funding of the SEC': The SEC budget has steadily

increased to nearly double the pre-SOX level. In the interview cited above, Sarbanes indicated that

enforcement and rule-making are more effective post-SOX.



1 *'Banking practices': Lending to a firm sends signals to investors regarding the firm's risk



1 *'Internet bubble': Investors had been stung in 2000 by the sharp

declines in technology stocks and to a lesser extent, by declines in the

overall market. Certain mutual fund managers were alleged to have

advocated the purchasing of particular technology stocks, while

quietly selling them. The losses sustained also helped create a

general anger among investors.https://store.theartofservice.com/the-sarbanes-oxley-toolkit.html


1 *'Executive compensation': Stock option and bonus practices,

combined with volatility in stock prices for even small earnings

misses, resulted in pressures to manage earnings. Stock options were

not treated as compensation expense by companies, encouraging

this form of compensation. With a large stock-based bonus at risk,

managers were pressured to meet their targets.


Sarbanes-Oxley - Timeline and passage of Sarbanes–Oxley

1 The House passed Rep



1 Senator Sarbanes's bill passed the Senate Banking Committee on June 18, 2002, by a

vote of 17 to 4. On June 25, 2002, MCI WorldCom|WorldCom revealed it had

overstated its earnings by more than $3.8 billion during the past five Fiscal year|

quarters (15 months), primarily by improperly accounting for its operating costs. Sen.

Sarbanes introduced Senate Bill 2673 to the full Senate that same day, and it passed 97–0 less than three weeks later on July 15, 2002.



1 The House and the Senate formed a United States Congress Conference

committee|Conference Committee to reconcile the differences between Sen. Sarbanes's bill (S. 2673) and Rep. Oxley's bill (H.R. 3763). The

conference committee relied heavily on S. 2673 and most changes made

by the conference committee strengthened the prescriptions of S. 2673 or added new prescriptions. (John T. Bostelman, The Sarbanes–

Oxley Deskbook § 2–31.)



1 The Committee approved the final conference bill on July 24, 2002, and gave it the name the Sarbanes–Oxley Act of 2002. The next

day, both houses of United States Congress|Congress voted on it without change,

producing an overwhelming margin of victory: in the House and in the Senate. On July 30,

2002, President George W. Bush signed it into law, stating it included the most far-reaching reforms of American business practices since

the time of Franklin D. Roosevelt.


Sarbanes-Oxley - Analyzing the cost-benefits of Sarbanes–Oxley

1 A significant body of academic research and opinion exists regarding

the costs and benefits of SOX, with significant differences in conclusions


Sarbanes-Oxley - Compliance costs

1 * FEI Survey (Annual): Finance Executives International (FEI)

provides an annual survey on SOX Section 404 costs



1 * Foley Lardner Survey (2007): This annual study focused on changes in

the total costs of being a U.S



1 * Butler/Ribstein (2006): Their book proposed a comprehensive overhaul

or repeal of SOX and a variety of other reforms



1 * A 2011 SEC study found that Section 404(b) compliance costs

have continued to decline, especially after 2007 accounting guidance..

Securities and Exchange Commission, April 2011


Sarbanes-Oxley - Benefits to firms and investors

1 * Arping/Sautner (2010): This research paper analyzes whether

SOX enhanced corporate transparency. Looking at foreign

firms that are cross-listed in the US, the paper indicates that, relative to a control sample of comparable firms that are not subject to SOX, cross-listed firms became significantly more transparent following SOX.

Corporate transparency is measured based on the dispersion and accuracy of analyst earnings

forecasts.



1 * Iliev (2007): This research paper indicated that SOX 404 indeed led to conservative reported earnings, but also reduced—rightly or wrongly—

stock valuations of small firms. Lower earnings often cause the share

price to decrease.



1 * Lord Benoit Report (2006): Do the Benefits of 404 Exceed the Cost? A study of a population of

nearly 2,500 companies indicated that those with no material weaknesses in their internal

controls, or companies that corrected them in a timely manner, experienced much greater

increases in share prices than companies that did not. The report indicated that the benefits to a compliant company in share price (10% above Russell 3000 index) were greater than their SOX

Section 404 costs.



1 * Institute of Internal Auditors (2005): The research paper indicates that corporations have improved their internal controls and that financial

statements are perceived to be more reliable.


Sarbanes-Oxley - Effects on exchange listing choice of non-U.S. companies

1 Some have asserted that Sarbanes–Oxley legislation has helped displace business from New York to London,

where the Financial Services Authority regulates the financial

sector with a lighter touch



1 The Sarbanes–Oxley Act's effect on non-

U.S



1 Piotroski and Srinivasan (2008) examine a comprehensive sample of international companies that list onto

U.S


Sarbanes-Oxley - Sarbanes–Oxley Section 302: Disclosure controls

1 Under Sarbanes–Oxley, two separate sections came into effect—one civil and the other criminal. (Section

302) (civil provision); (Section 906) (criminal provision).



1 Section 302 of the Act mandates a set of internal procedures designed

to ensure accurate financial disclosure



1 The SEC interpreted the intention of Sec. 302 in Final Rule 33–8124. In it,

the SEC defines the new term Corporation#Financial disclosure|

disclosure controls and procedures, which are distinct from internal

controls over financial reporting. Under both Section 302 and Section 404, Congress directed the SEC to promulgate regulations enforcing

these provisions.https://store.theartofservice.com/the-sarbanes-oxley-toolkit.html


1 External auditors are required to issue an opinion on whether effective

internal control over financial reporting was maintained in all

material respects by management. This is in addition to the financial statement opinion regarding the

accuracy of the financial statements. The requirement to issue a third opinion regarding management's

assessment was removed in 2007.https://store.theartofservice.com/the-sarbanes-oxley-toolkit.html

Sarbanes-Oxley - Sarbanes–Oxley Section 303: Improper Influence on Conduct of Audits

1 a.Rules To Prohibit


Sarbanes-Oxley - Sarbanes–Oxley Section 401: Disclosures in periodic reports (Off-balance sheet items)

1 Sarbanes-Oxley required the disclosure of all material off-balance sheet items


Sarbanes-Oxley - Sarbanes–Oxley Section 404: Assessment of internal control

1 The most contentious aspect of SOX is Section 404, which requires management and the external

auditor to report on the adequacy of the company's internal control on

financial reporting (ICFR). This is the most costly aspect of the legislation

for companies to implement, as documenting and testing important

financial manual and automated controls requires enormous effort.



1 Under Section 404 of the Act, management is required to produce an internal control report as part of each annual Exchange Act report



1 To help alleviate the high costs of compliance, guidance and practice have continued to

evolve



1 * Assess both the design and operating effectiveness of selected

internal controls related to significant accounts and relevant assertions, in the context of material misstatement

risks;



1 * Understand the flow of transactions, including IT aspects, in sufficient detail to identify points at which a misstatement could arise;



1 * Evaluate company-level (entity-level) controls, which correspond to

the components of the Committee of Sponsoring Organizations of the

Treadway Commission|COSO framework;



1 * Perform a fraud risk assessment;



1 * Evaluate controls designed to Fraud deterrence|prevent or detect fraud, including management override of

controls;



1 * Evaluate controls over the period-end finance|

financial reporting process;



1 * Rely on management's work based on factors such as competency, objectivity, and

risk;



1 * Conclude on the adequacy of internal control over financial

reporting.



1 SOX 404 compliance costs represent a tax on inefficiency, encouraging

companies to centralize and automate their financial reporting

systems


Sarbanes-Oxley - Sarbanes–Oxley 404 and smaller public companies

1 The cost of complying with SOX 404 impacts smaller companies

disproportionately, as there is a significant fixed cost involved in completing the assessment. For

example, during 2004 U.S. companies with revenues exceeding $5 billion spent 0.06% of revenue on

SOX compliance, while companies with less than $100 million in

revenue spent 2.55%.https://store.theartofservice.com/the-sarbanes-oxley-toolkit.html


1 This disparity is a focal point of 2007 SEC and U.S. Senate action. The PCAOB intends to issue further

guidance to help companies scale their assessment based on company

size and complexity during 2007. The SEC issued their guidance to

management in June, 2007.



1 After the SEC and PCAOB issued their guidance, the SEC required smaller public companies (non-accelerated filers) with fiscal years ending after December 15, 2007 to document a Management Assessment of their

Internal Controls over Financial Reporting (ICFR)



1 On September 15, 2010 the SEC issued final rule 33-9142 the

permanently exempts registrants that are neither accelerated nor large accelerated filers as defined by Rule 12b-2 of the Securities and Exchange

Act of 1934 from Section 404(b) internal control audit requirement.


Sarbanes-Oxley - Sarbanes–Oxley Section 906: Criminal Penalties for CEO/CFO financial statement certification

1 § 1350. Section 906 states: Failure of corporate officers to certify financial reports



1 (a) Certification of Periodic Financial Reports.— Each periodic report

containing financial statements filed by an issuer with the Securities

Exchange Commission pursuant to section 13(a) or 15(d) of the

Securities Exchange Act of 1934 (15 U.S.C. 78m (a) or 78o (d)) shall be

accompanied bySection 802(a) of the SOX a written statement by the chief executive officer and chief financial officer (or equivalent thereof) of the

issuer.



1 (b) Content.— The statement required under subsection (a) shall certify that the

periodic report containing the financial statements fully complies with the

requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15

U.S.C. 78m or 78o (d)) and that information contained in the periodic report fairly presents, in all material respects, the

financial condition and results of operations of the issuer.



1 (1) certifies any statement as set forth in subsections (a) and (b) of this

section knowing that the periodic report accompanying the statement

does not comport with all the requirements set forth in this section

shall be fined not more than $1,000,000 or imprisoned not more

than 10 years, or both; or



1 (2) willfully certifies any statement as set forth in subsections (a) and (b) of this section knowing that the periodic report accompanying the statement

does not comport with all the requirements set forth in this section

shall be fined not more than $5,000,000, or imprisoned not more

than 20 years, or both.


Sarbanes-Oxley - Sarbanes–Oxley Section 1107: Criminal penalties for retaliation against whistleblowers

1 Section 1107 of the SOX states:Stephen M. Kohn, Michael D.

Kohn, and David K. Colapinto (2004). Whistleblower Law: A Guide to Legal Protections for Corporate Employees.

Praeger Publishers. ISBN 0-275-98127-4


Sarbanes-Oxley - Criticism

1 [http://paul.house.gov/index.php?option=com_contenttask=viewid=209Itemid=60 Repeal Sarbanes-Oxley!]

Ron Paul, April 14, 2005



1 A research study published by Joseph Piotroski of Stanford University and

Suraj Srinivasan of Harvard Business School titled Regulation and Bonding: Sarbanes Oxley Act and the Flow of

International Listings in the Journal of Accounting Research in 2008 found

that following the act's passage, smaller international companies were more likely to list in stock exchanges

in the U.K. rather than U.S. stock exchanges.



1 During the financial crisis of 2007–2010, critics blamed Sarbanes–Oxley

for the low number of Initial Public Offerings (IPOs) on American stock

exchanges during 2008. In November 2008, Newt Gingrich and co-author

David W. Kralik called on Congress to repeal Sarbanes–Oxley.



1 A December 21, 2008 Wall St



1 The editorial concludes that: For all of this, we can first thank Sarbanes–Oxley. Cooked up in the wake of accounting scandals earlier this

decade, it has essentially killed the creation of new public companies in America, hamstrung

the NYSE and Nasdaq (while making the London Stock Exchange rich), and cost U.S. industry more than $200 billion by some estimates.

[http://online.wsj.com/article/SB122990472028925207.html Washington Is Killing Silicon Valley],

Wall St. Journal, December 21, 2008



1 However, the number of IPOs had declined to 87 in 2001, well down

from the highs, but before Sarbanes–Oxley was passed. In 2004, IPOs were up 195% from the previous

year to 233.[http://www.prnewswire.com/new

s-releases/number-of-ipos-in-2004-increased-by-195-ipo-activity-in-q4-2004-strongest-in-more-than-four-years-53844047.html Number of IPOs in 2004 Increased by 195%]

There were 196 IPOs in 2005, 205 in 2006 (with a sevenfold increase in deals over $1 billion) and 209 in

2007.



1 On that score it's getting harder for backers of the Sarbanes-Oxley

accounting law to explain away each disappointing year since its 2002

enactment as some kind of temporary or unrelated setback.

[http://online.wsj.com/article/SB100014240529702047202045771290523

17747614.html?mod=googlenews_wsj America as

Number Two], Wall Sthttps://store.theartofservice.com/the-sarbanes-oxley-toolkit.html

Sarbanes-Oxley - Praise

1 Former Federal Reserve Chairman Alan Greenspan praised the Sarbanes–Oxley Act: I am surprised that the Sarbanes–Oxley Act,

so rapidly developed and enacted, has functioned as well as it has...the act

importantly reinforced the principle that shareholders own our corporations and that corporate managers should be working on behalf of shareholders to allocate business

resources to their optimum use.



1 SOX has been praised by a cross-section of financial industry experts, citing improved investor confidence and more accurate, reliable financial

statements



1 The Financial Executives International (FEI) 2007 study and research by the Institute of Internal Auditors (IIA) also indicate SOX

has improved investor confidence in financial reporting, a primary objective of

the legislation. The IIA study also indicated improvements in board, audit

committee, and senior management engagement in financial reporting and

improvements in financial controls.



1 Financial restatements increased significantly in the wake of the SOX

legislation, as companies cleaned up their books



1 One fraud uncovered by the Securities and Exchange Commission

(SEC) in November 2009 may be directly credited to Sarbanes-Oxley



1 Restitution totaling $34 million was placed in a fair fund and returned to the affected Value Line mutual fund

investors



1 Sarbanes Oxley Act has been praised for nurturing an ethical culture as it

forces top management to be transparent and employees to be responsible for their acts and also

protects whistle blowers.


Sarbanes-Oxley - Legal challenges

1 A lawsuit (Free Enterprise Fund v



1 The lawsuit was dismissed from a District Court; the decision was

upheld by the Court of Appeals on August 22, 2008


Sarbanes-Oxley - Legislative information

1 *United States House of Representatives|House: , H. Rept. 107–414, H. Rept. 107–610



1 The Committee approved the final conference bill on July 24, 2002, and gave it the name the Sarbanes–Oxley

Act of 2002



1 * A 2011 SEC study found that Section 404(b) compliance costs

have continued to decline, especially after 2007 accounting guidance.

[http://sec.gov/news/studies/2011/404bfloat-study.pdf Study and

Recommendations on Section 404(b)]. Securities and Exchange

Commission, April 2011



1 * Skaife/Collins/Kinney/LaFond (2006): This research paper indicates

that borrowing costs are lower for companies that improved their

internal control, by between 50 and 150 basis points (.5 to 1.5

percentage points).[http://web.archive.org/web/20070809115641/http://www.wbur.org/news/local/icd/icd.pdf The Effect of Internal Control Deficiencies on Firm

Risk and Cost of Capital]



1 To help alleviate the high costs of compliance, guidance and practice have continued to

evolve



1 The lawsuit was dismissed from a District Court; the decision was

upheld by the Court of Appeals on August 22,

2008.[http://pcaobus.org/News/Releases/Pages/08222008_PCAOBStatement.aspx PCAOB News Release] Judge Kavanaugh, in his dissent, argued

strongly against the constitutionality of the law


Sarbanes-Oxley - Similar laws in other countries

1 *Keeping the Promise for a Strong Economy Act (Budget Measures),

2002 — Ontario, Canada, equivalent of Sarbanes–Oxley Act



1 *J-SOX — Japanese equivalent of Sarbanes–Oxley Act



1 *:de:Deutscher Corporate Governance Kodex|German

Corporate Governance Code (at the German Wikipedia)



1 *:nl:code-Tabaksblat — Dutch version, based on 'comply or explain' (at the Dutch

Wikipedia)



1 *Corporate Law Economic Reform Program Act 2004|CLERP9 —

Australian corporate reporting and disclosure law



1 *Financial Security Law of France (Loi sur la Sécurité Financière) — French equivalent of Sarbanes–Oxley Act



1 *L262/2005 (Disposizioni per la tutela del risparmio e la disciplina dei

mercati finanziari) — Italian equivalent of Sarbanes–Oxley Act for

financial services institutions



1 * King Report on Corporate Governance — South African corporate governance code



1 * Clause 49 — Indian equivalent of SOX



1 * TC-SOX 11 — Turkish equivalent of SOX


Sarbanes-Oxley Act

1 The act was approved by the United States House of Representatives|House by a vote of[http://clerk.house.gov/evs/2002/roll348.

xml 423 in favor, 3 opposed, and 8 abstaining] and by the United States

Senate|Senate with a vote of[http://www.senate.gov/legislative/LIS/roll

_call_lists/roll_call_vote_cfm.cfm?congress=107session=2vote=00192 99 in

favor, 1 abstaining]


Sarbanes-Oxley Act - Clawbacks of executive compensation for misconduct

1 One of the highlights of the law was a provision that allowed the SEC to force a company's CEO or CFO to disgorgement (law)|disgorge any executive compensation (such as bonus pay or proceeds from stock

sales) earned within a year of misconduct that results in an

earnings restatement


Sarbanes-Oxley Act - Criticism

1 A December 21, 2008 Wall Street Journal editorial stated, The new laws

and regulations have neither prevented frauds nor instituted

fairness


Audit committee - Impact of the Sarbanes-Oxley Act of 2002

1 The Sarbanes-Oxley Act of 2002 increased audit committees’ responsibilities and

authority. It raised membership requirements and committee composition to

include more independent directors. Companies were required to disclose

whether or not a financial expert is on the Committee. Further, the Securities and

Exchange Commission and the stock exchanges proposed new regulations and

rules to strengthen audit committees.https://store.theartofservice.com/the-sarbanes-oxley-toolkit.html

Certified Sarbanes-Oxley Professional

1 'Certified Sarbanes-Oxley Professional (CSOXP)' is a credential awarded by the governance, risk Regulatory compliance|compliance group ('The GRC Group'). The

CSOXP credential communicates that certified professionals have the knowledge

listed below:[http://www.grcg.com/why-become-certified-sox Official website of The GRC Group, Training Certification, Sarbanes-

Oxley (SOX), CSOXP/CSOXM: Certified Sarbanes-Oxley Professiona]



1 * Industry-accepted Policy framework|frameworks and

principles



1 * The role of audit committees



1 * Auditor independence



1 * Conflicts of interest and codes of conduct



1 * Whistleblower protection and corporate fraud



1 * COSO Enterprise risk management|ERM components (internal

environment, objective setting, even identification, risk assessment, risk

response, control activities, information and communication, and

monitoring)



1 * Section 404 internal control documentation



1 * Entity-level and activity-level testing controls, techniques, effectiveness, and

documentation



1 Also, the certified professionals must have 1,200 hours of related

experience (over the past three years).


One share, one vote - Sarbanes-Oxley Act of 2002

1 * The Public Company Accounting Oversight Board (PCAOB) be

established to regulate the auditing profession, which had been self-

regulated prior to the law. Auditors are responsible for reviewing the

financial statements of corporations and issuing an opinion as to their

reliability.



1 * The Chief Executive Officer (CEO) and Chief Financial Officer (CFO)

attest to the financial statements. Prior to the law, CEO's had claimed in

court they hadn't reviewed the information as part of their defense.



1 * Board audit committees have members that are independent and disclose whether or not at least one is a financial expert, or reasons why

no such expert is on the audit committee.



1 Prior to the law, there was the real or perceived conflict of interest

between providing an independent opinion on the accuracy and

reliability of financial statements when the same firm was also providing lucrative consulting

services.[http://www.gpo.gov/fdsys/pkg/PLAW-107publ204/pdf/PLAW-

107publ204.pdf Text of the Sarbanes-Oxley Act of 2002]


Wall Street reform - Sarbanes-Oxley Act of 2002

1 The Sarbanes-Oxley Act, by Sen. Paul S. Sarbanes (Democratic Party of the United States|D-Maryland|MD) and Rep. Michael

G. Oxley (Republican Party (United States)|R-Ohio|OH), was signed into law by George W. Bush in July 2002. The bill

was enacted as a reaction to a number of major accounting scandals|corporate and

accounting scandals including those affecting Enron and WorldCom.


Economic policy of the George W. Bush administration - Sarbanes-Oxley Act

1 President Bush signed the Sarbanes-Oxley Act into law during July 2002,

which he called the most far-reaching reforms of American business

practices since the time of Franklin Delano Roosevelt


Investor relations - The Sarbanes-Oxley Act

1 Similar to Sarbanes-Oxley are the Keeping the Promise for a Strong Economy Act (Budget Measures),

2002 in Canada, Financial Security Law of France in France, and J-SOX in

Japan


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