Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 (107 H.R. 3763), signed into law on 30 July 2002, is considered the most significant change to federal securities laws in the United States since the New Deal. It came in the wake of a series of corporate financial scandals, including those affecting Enron, Arthur Andersen, and WorldCom. The law is named after Senator Paul Sarbanes and Representative Michael G. Oxley. It was approved by the House by a vote of 423-3 and by the Senate 99-0.

Its major provisions include:

Certification of financial reports by CEOs and CFOs
Ban on personal loans to Executive Officers and Directors
Accelerated reporting of trades by insiders
Prohibition on insider trades during pension fund blackout periods
Publicly revealing of CEO and CFO compensation and profits
Additional disclosure
Auditor independence, including outright bans on certain types of work and pre-certification by the company's Audit Committee of all other non-audit work
Criminal and civil penalties for securities violations
US companies are now obliged to have an internal audit function, which will need to be certified by external auditors.
Significantly longer jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements.
Preventing audit firms from providing extra "value-added" services to their clients including actuarial services, legal and extra services (such as consulting) unrelated to their audit work.

Next to this the company's CEO and CFO should report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports as stated in section 404 of the act. The Public Company Accounting Oversight Board (PCAOB) [1] (http://www.pcaob.com)has issued some guidelines on how management should render their opinion.

The main point is that management should use a risk management approach such as COSO (which descibes how to assess the control environment, determine control objectives, perform risk assesments, and identify controls).

Whilst addressing a number of domestic concerns, the Act has been criticised by foreign regulators for seeking jurisdiction over their national affairs.

Smaller companies may be affected by Sarbanes Oxley if trading with a large company subject to it. In addition to this a large number of them are requiring their smaller suppliers to register with the ISN.

Legislative Information

House: 107 H.R. 3763, H. Rept. 107-414, H. Rept. 107-610
Senate: 107 S. 2673, S. Rept. 107-205
Law: Pub. L. 107-204, 116 Stat. 745

External links

Summary of Sarbanes-Oxley Act of 2002 (http://www.aicpa.org/info/sarbanes_oxley_summary.htm) AICPA
The text of the law (PDF) (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=107_cong_bills&docid=f:h3763enr.tst.pdf) U.S. Government Printing Office
The full text of the act in HTML format (http://www.legalarchiver.org/soa.htm)
An overview of major points in the act (http://www.cpeonline.com/cpenew/sarox.asp)
An interactive forum dedicated to the Sarbanes-Oxley Act (http://www.sarbanes-oxley-forum.com)

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