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    Essentials of Sarbanes-Oxley
    Essentials of Sarbanes-Oxley
    Essentials of Sarbanes-Oxley
    Ebook271 pages2 hours

    Essentials of Sarbanes-Oxley

    By Sanjay Anand

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    About this ebook

    • What is the importance of Sections 302 and 404?
    • "Implementing" SOX using COSO and COBIT
    • SOX's impact on foreign companies andnonprofits
    • Achieving cost-effective sustainable compliance
    • The evolving role of the SEC and the PCAOB

    Praise for ESSENTIALS OF SARBANES-OXLEY

    "Since its enactment in 2002, the Sarbanes-Oxley Act and its Section 404 internal control requirements have caused many a great deal of 'pain and suffering!' With its emphasis on what Sanjay Anand frequently reminds us is the 'real world,' this book should reduce some of that pain as it provides a practical and very realistic approach for an effective implementation of Sarbanes-Oxley internal control processes. The book has references to the new changes in auditing standards and emphasizes achieving sustainable compliance-practical and realistic approaches."
    —Robert R. Moeller, President, Compliance & Control Systems, Inc.

    "Sanjay Anand has provided what every busy executive needs, a concise overview of Sarbanes-Oxley Act essentials. His book is a terrific reference text that I recommend to anyone who needs to quickly understand the substance of the Act."
    —Scott Green, Chief Administration Officer Weil, Gotshal & Manges LLP

    "If you are looking to put together the various pieces-finance, accounting, audit, legal, IT, ethics-and understand the 'big picture' of the Sarbanes-Oxley Act, there is no other book like this. With 'Tips & Techniques' and 'In the Real World' examples, this book brings lively, practical, tangible, and compressible dimensions to a complex, multifaceted (and often dry) subject. This is essential reading for those new to the process and old hands going into their third and fourth years of SOX. It will also help those in other countries adopting SOX-like internal controls and regulations."
    —Dr. Anthony Tarantino, Governance, Risk, and Compliance Center of Excellence, IBM, Financial Services Sector, Silicon Valley and New York City

    Written by Sanjay Anand, one of the world's leading corporate governance, risk management, and regulatory compliance experts, this simple to use book is designed with appreciation for demanding professional obligations, with information always easy to find and at your fingertips. Essentials of Sarbanes-Oxley equips you with the knowledge you and all your company members need to initiate a SOX project, allocate a budget, and help your company achieve compliance.

    LanguageEnglish
    PublisherWiley
    Release dateJul 5, 2011
    ISBN9781118160633
    Essentials of Sarbanes-Oxley

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      Book preview

      Essentials of Sarbanes-Oxley - Sanjay Anand

      CHAPTER 1

      Background

      After reading this chapter, you will be able to:

      Understand the historical environment from which the Sarbanes-Oxley Act (SOX) was born.

      Understand the key principles in the development of the Act.

      Understand the role of the Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) in SOX-related regulation development and enforcement.

      Introduction

      The Sarbanes-Oxley Act (Publication License No. 107-204, 116 Stat. 745) is a U.S. federal law that is known by several names, including:

      Public Company Accounting Reform and Investor Protection Act of 2002

      SOA

      SOX

      SarbOx

      This law was created, in part, as a reaction to the corporate corruption scandals that occurred during the late 1990s and early 2000s. One of the primary objectives of the Act was to establish clear accounting and reporting practices for both the boards of publicly traded U.S. companies and public accounting firms. This was done in the hope of reinstating the trust of investors and the general public.

      Essentially, SOX requires that every publicly traded company’s executive members evaluate and hold responsibility for the accuracy and completeness of all financial information that is released. This Act also requires that companies release information regarding those controls that are in place to ensure the accuracy of the financial information.

      This chapter introduces the history of SOX and provides insight into the circumstances that resulted in its enactment.

      Corporate Scandals

      In the years surrounding the turn of the twenty-first century, several high-profile corporate scandals shook public trust. Insider trading, fraudulent financial records, and other deceitful incidents caused investors to question the integrity of the stock markets and their listed companies.

      The poster children of this era include WorldCom, Enron, and Tyco International.¹ The exploits of some of their key executives resulted in document manipulation to facilitate insider trades, hide debts, and inflate assets, in an effort to purposely mislead investors.

      WorldCom. As chief executive officer (CEO) of WorldCom, Bernard Ebbers was able to amass a large fortune during the 1990s. Ebbers used his stock holdings to finance personal ventures and further increase his assets. In the year 2000 WorldCom’s stock began its decline, and Ebbers was unable to cover his stock’s margin calls. To raise the funds Ebbers turned to WorldCom’s board of directors for loans and guarantees worth over $400 million.

      Ebbers resigned from his position in mid-2002 after a federal probe began in April of that year into both his loans and WorldCom’s accounting practices. That June the SEC filed fraud charges against WorldCom, and on March 15, 2005, Ebbers was convicted on charges of fraud and conspiracy.

      His legal conviction carried a sentence of 25 years in prison, which Ebbers is currently serving in a Louisiana federal prison. The former CEO has also agreed to civil lawsuit settlements that require the relinquishment of his assets.

      Additionally, civil settlements also require Ebbers to issue financial restitution of $6 billion the investors that he defrauded. Although significant, this is relatively inconsequential when compared to the $180 billion lost by investors as a direct result of the WorldCom fraud.

      Enron scandal. As the United States’ seventh largest company, Enron once employed more than 21,000 people in over 40 countries. During its time on top, Enron was a major corporate competitor and held close ties with the White House.

      In September 2006, Enron sold its last remaining business, Prisma International, thus completing its transition from industry leader to assetless corporation.

      The company experienced its collapse as a direct result of corporate accounting fraud. In order to mislead investors and maintain its successful image, Enron manipulated its financial appearance by lying about profits and hiding debts.

      Several Enron executives were convicted on charges related to fraud and conspiracy. For example, Andrew Fastow, chief financial officer (CFO), was sentenced to 10 years in prison and ordered to forfeit $24 million. Kenneth Lay, CEO, was also convicted and faced 45 years in prison after his conviction, but died before the sentence was handed down.

      Tyco International scandal. Tyco International’s CEO, Dennis Kozlowski, and CFO, Mark Swartz, were convicted on June 17, 2005, of stealing $600 million from the corporation. Their actions not only defrauded investors, but also directly resulted in the loss of several thousand jobs.

      Unlike Enron and WorldCom, Tyco International has been able to persevere through the scandal. Although suffering severe financial setbacks, the company has rearranged assets, sold smaller businesses, and worked to regain the trust of investors.

      Unfortunately, these are not the only scandals that scar corporate America’s past, although they are the ones that have received the most attention. These events created a collective sense of dishonesty and disregard for the rights of investors that has led to a breakdown of the trust that the public had for the U.S. markets and their company

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