Sarbanes-Oaxley Act

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Sarbanes – Oxley Act

The Sarbanes-Oxley Act (SOX) is named after its’ sponsors, U.S. Senator Paul Sarbanes and U.S. Representative Michael G. Oxley. The act was enacted on July 30, 2002. It is also known as the Public Company Accounting Reform and Investor Protection Act (Senate) and the Corporate and Auditing Accountability Act (House).

The bill was enacted as a reaction to a large number of major corporate and accounting scandals. These scandals raised public confidence in the nation’s securities markets. The bill does not apply to privately held companies.

The Act contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties and it requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Under the Sarbanes-Oxley Act, two separate sections came into effect, one civil section and one criminal section.

Section 302 of the Act mandates a set of internal procedures designed to ensure accurate financial disclosure. The signing officers must certify that they are responsible for establishing and maintaining internal controls to ensure that material information relating to the company and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared. The officers must have evaluated the effectiveness of the company’s internal controls as of a date within 90 days prior to the report and have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date.

Section 404 of the Act requires management and the external auditor to report on the adequacy of the company’s internal control over financial reporting (ICFR). This is the most contentious…...

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