Q.What is Sarbanes-Oxley?A.The Sarbanes-Oxley Act of 2002 (also known as the Public Company Accounting Reform andInvestor Protection Act of 2002 and commonly called SOX, S-Ox or Sarbox; July 30, 2002) isa controversial United States federal law named after sponsors Senator Paul Sarbanes (D-Md.) and Representative Michael G. Oxley (R-Oh.), the Act was approved by the House by avote of 423-3 and by the Senate 99-0. The legislation establishes new or enhanced standardsfor all U.S. public company boards, management, and public accounting firms. The Actcontains 11 titles, or sections, ranging from additional Corporate Board responsibilities tocriminal penalties, and requires the Securities and Exchange Commission (SEC) to implementrulings on requirements to comply with the new law. The first part of the Act establishes anew quasi-public agency, the Public Company Accounting Oversight Board, which is chargedwith overseeing, regulating, inspecting, and disciplining accounting firms in their roles asauditors of public companies. The Act also covers issues such as auditor independence,corporate governance, internal control assessment, and enhanced financial disclosure.Q.What companies does SOX apply to?A.Any company governed by the Securities and Exchange Commission (SEC) which includesall publicly traded companies; including all divisions, and their wholly owned subsidiaries,must comply with Sarbanes-Oxley. In addition Sarbanes-Oxley also applies to any non-US public multinational company engaging in business in the US.Q.Why was SOX implemented?
The law was passed in response to a number of major corporate and accounting scandalsincluding those affecting Enron, Tyco International and WorldCom. These scandals resulted ina decline of public trust in accounting and financial reporting practices. quisitions of companies into a larger public entity.Q.What are the penalties for noncompliance to SOX?A.Corporate noncompliance to earlier government regulations, such as occupational health andsafety rules in the work place (OSHA requirements), resulted in corporate fines, lawsuits andnegative publicity. Noncompliance to Sarbanes-Oxley regulations is harsher. A CEO or CFOwho submits a wrong certification is subject to a fine of up to $1 million and imprisonmentfor up to 10 years. If the wrong certification is submitted “willfully,” the fine can be increasedup to $5 million and the prison term can be increased up to 20 years.Q.What is S-Ox 404?
Section 404 of the Sarbanes-Oxley Act relates to Management's assessment of internal controlover financial reporting. Both management and the external auditor are responsible for performing their assessment in the context of a top-down risk assessment, which requiresmanagement to base both the scope of its assessment and evidence gathered on risk.Acquisitions of companies into a larger public entity.