An Introduction To Sarbanes Oxley Act
On 30th July 2002, the Sarbanes Oxley Act was signed and came in to force. Since then a number of people have been asking the question What is the Sarbanes Oxley Act? This act is named after the senator Paul Sarbanes and Representative Michael G. Oxley. The act aims at establishing new and enhanced standards for all the public company boards, management, and public accounting firms of the United States.
The act indeed helped to introduce important and significant legislative changes to the financial practices and the corporate governance regulation. As a result, many new rules were introduced. The stated objective of these rules was to protect the investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws.
The Sarbanes-Oxley Act is also known as the Public Company Accounting Reform and Investor Protection Act of 2002. It is the Federal Law of United States, which was passed by the government in response to several accounting and corporate scandals. These scandals included the scandals that affected Enron, Tyco International, Peregirne Systems and WorldCom.
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These scandals resulted due to the decline of the public trust in the accounting and reporting practices of the country. There are certain sections of the Sarbanes- Oxley Act that are very important with respect to the compliance and international control. With this legislation, compliance is no more a difficult task. However, one should address compliance methodically. It should be stated with profound analysis and study. One should always plan the compliance and then implement it. The Sarbanes Oxley Act is organized into eleven titles. Although every section is important, there are some specific sections of Sarbanes Oxley Act that are more relevant. These are the sections related to Sarbanes Oxley compliance. These Sections are: Section 302, The cover pages of the legislation contain the major compliance sections. One can refer to them whenever required. Apart from the compliance, this act also provides several other major provisions. Some of these provisions include interalia, Creation of the Public Company Accounting Oversight Board (PCAOB), designation of chief executive officers and chief financial officers to certify the financial reports, The act has baaned most of the personal loan schemes to any executive officer or director. Several sections are included to ensure auditor independence- This includes the right to prohibit the audit clients from doing certain works. It also includes a pre-certification of all non-audit work by the Audit Committee of the company. Other things include rapid reporting of the insider trading, barring any insider trading during the period of pension fund blackouts. Additional disclosure is required on financial health. New penalties on the violation of the laws of security are introduced. There are long-term prison sentences for those corporate executives who intentionally misquote the financial statements. These important provisions of the Sarbanes-Oxley act can help prevent the scandals in the corporate world. |
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