SARBANES OXLEY

ACT,2002
INTRODUCTION
  A United States federal law Enacted on July 30, 2002

 Also known as the 'Public Company Accounting Reform and

Investor Protection Act' (in the Senate) and 'Corporate and
Auditing Accountability and Responsibility Act' (in
the House)

 Was enacted as a reaction to a number of major corporate

and accounting scandals including those
affecting Enron, Tyco International, 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 nation's securities markets.

 The legislation set new or enhanced standards for all

U.S. public company boards, management and public
accounting firms.

 It does not apply to privately held companies.

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

corporate board responsibilities to criminal penalties, and
requires the Securities and Exchange Commission (SEC) to
implement rulings on requirements to comply with the new
law.
 Harvey Pitt, the 26th chairman of the Securities and
Exchange Commission (SEC), led the SEC in the adoption of
dozens of rules to implement the Sarbanes–Oxley Act.

 It created a new, quasi-public agency, the Public Company

Accounting Oversight Board, or PCAOB, charged with
overseeing, regulating, inspecting and disciplining
accounting firms in their roles as auditors of public
companies.

 The act also covers issues such as auditor

 independence, corporate governance , internal control
 assessment, and enhanced financial disclosure.
 Debate continues over the perceived benefits and costs of
SOX.

 Supporters contend the legislation was necessary and has

played a useful role in restoring public confidence in the
nation's capital markets by, among other things,
strengthening corporate accounting controls.

 Opponents of the bill claim it has reduced America's

international competitive edge against foreign financial
service providers, saying SOX has introduced an overly
complex regulatory environment into U.S. financial
markets.
IMPACT ON HR
 Although the legislation's main focus is board governance and
accounting practices, the act's reach extends into a variety of
administrative areas, including human resources.

 Legal and HR experts said human resource departments will have

to handle several new responsibilities as a result of Sarbanes-
Oxley, but they also acknowledged that its full reach is still
unknown.

 The HR department, for example, will be involved during periods

when employees can't trade company stock held in their accounts;
under the act, there must be advance notice of blackout periods.

 HR personnel will not only have to put together the notification,

they'll most likely coordinate the company's compliance with this
section of the act.
 HR officers will also be directly involved with decisions on
executive compensation, which under Sarbanes-Oxley
cannot include the extension of credit in the form of a
personal loan.

 However, legal experts said, it's unclear how far-reaching

that prohibition is. HR people will have to examine such
programs as split-dollar life insurance to determine
whether they're banned under the 2002 act.

 Sarbanes-Oxley doesn't have that many direct impacts on

benefits -- the blackout and the loan impact -- but the
broader impact is to what degree companies will look at
governance procedures for their benefit plans
 Many companies, both public and private, are examining
the governance of their benefit plans --who is in charge
and what are the liabilities, for example.

 There could be hundreds of millions of dollars at risk,

which means that if there's mismanagement of assets,
there could be hundreds of millions of dollars in liability.

 HR departments, knowing that corporate directors are

asking these questions, are often teaming up with finance
departments to conduct this review.
 Sarbanes-Oxley also prohibits retaliation against workers
who report suspicious accounting and financial-reporting
practices.

 With no details on how to enforce such a prohibition, HR

people are left to rethink corporate rules and procedures.

 So the issue for the HR person is to be available as a

source for people to go to with complaints and to conduct
an investigation in a discreet but as thorough a way as
possible."
 Sarbanes-Oxley allows employees to complain to someone
internally as well as to law enforcement agencies, Congress
or congressional committees about possible financial
misconduct

 HR officials will be well served to draft policies outlining how

an employee should lodge a complaint.

 Beyond that, HR staff members will likely find themselves

working with legal counsel to draft explicit policies about
how the employees will be protected in cases where workers
blow the whistle.

 HR officials might also find themselves mediating complaints.

 HR people are going to have some very specific procedures
... to receive, retain and treat complaints that they
receive about accounting or auditing matters, and in
addition, they must have some mechanism to get
anonymous, confidential comments and concerns

 Experts also acknowledged that Sarbanes-Oxley certainly

took accountability higher than it would have been
without such an act.

 Sarbanes-Oxley has really raised the bar for corporate

activity
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