Student Guide to the Sarbanes-Oxley Act
Enron was once the seventh-largest company on the Fortune 500. Yet, in the wake of revelations of accounting irregularities and securities fraud, it became entangled in the greatest business scandal of a generation and was essentially blinked out of existence after declaring bankruptcy. Similar accounting scandals at Global Crossing, Tyco, WorldCom, Adelphia, HealthSouth, and other companies prompted Congress to pass the Sarbanes-Oxley Act (SOX) in June 2002. This revolutionary act, which...
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Enron was once the seventh largest company on the Fortune 500. Yet, in the wake of revelations of accounting irregularities and securities fraud, it became entangled in the greatest business scandal of a generation and, after declaring bankruptcy, essentially blinked out of existence. Similar accounting scandals at Global Crossing, Tyco, WorldCom, Adelphia, HealthSouth, and other companies prompted Congress to pass the Sarbanes-Oxley Act (SOX) in June of 2002. This revolutionary act, which embodies the most significant securities law changes since the original federal securities laws of 1933 and 1934, contains provisions that create a new federal agency, restructure the entire accounting industry, reform Wall Street practices, dramatically alter corporate governance practices here and abroad, and attack insider trading and obstruction of justice. A lot has happened since its passage. The Public Company Accounting Oversight Board (PCAOB) has come into being and the PCAOB and the Securities Exchange Commission (SEC) have issued countless rules to implement Sarbanes-Oxley's many legislative mandates. This short guide focuses not only on what each part and section of the SOX means but also on what businesses need to know now that is has been implemented.
TITLE I. PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD. Establishment; Administrative Provisions. Registration with the Board. Auditing, Quality Control, and Independence Standards and Rules. Inspections of Registered Public Accounting Firms. Investigations and Disciplinary Proceedings. Foreign Public Accounting Firms. Commission Oversight of the Board. Accounting Standards. Funding. TITLE II. AUDITOR INDEPENDENCE. Services Outside the Scope of Practice of Auditors. Preapproval Requirements. Audit Partner Rotation. Auditor Reports to Audit Committees. Conforming Amendments. Conflicts of Interest. Study of Mandatory Rotation of Registered Public Accounting Firms. Commission Authority. Considerations by Appropriate State Regulatory Authorities. TITLE III. CORPORATE RESPONSIBILITY. Public Company Audit Committees. Corporate Responsibility for Financial Reports. Improper Influence on Conduct of Audits. Forfeiture of Certain Bonuses and Profits. Officer and Director Bars and Penalties. Insider Trades During Pension Fund Blackout Periods. Rules of Professional Responsibility for Attorneys. Fair Funds for Investors. TITLE IV. ENHANCED FINANCIAL DISCLOSURES. Disclosures in Periodic Reports. Enhanced Conflict of Interest Provisions. Disclosures of Transactions Involving Management and Principal Stockholders. Management Assessment of Internal Controls. Exemption. Code of Ethics for Senior Financial Officers. Disclosure of Audit Committee Financial Expert. Enhanced Review of Periodic Disclosures by Issuers. Real Time Issuer Disclosures. TITLE V. ANALYST CONFLICTS OF INTEREST. Treatment of Securities Analysts by Registered Securities Associations and National Securities Exchanges. TITLE VI. COMMISSION RESOURCES AND AUTHORITY. Authorization of Appropriations. Appearance and Practice Before the Commission. Federal Court Authority to Impose Penny Stock Bars. Qualifications of Associated Persons of Brokers and Dealers. TITLE VII. STUDIES AND REPORTS. GAO Study and Report Regarding Consolidation of Public Accounting Firms. Commission Study and Report Regarding Credit Rating Agencies. Study and Report on Violators and Violations. Study of Enforcement Actions. Study of Investment Banks. TITLE VIII. CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY. Short Title. Criminal Penalties for Altering Documents. Debts Nondischargeable if Incurred in Violation of Securities Fraud Laws. Statute of Limitations for Securities Fraud. Review of Federal Sentencing Guidelines for Obstruction of Justice and Extensive Criminal Fraud. Protection for Employees of Publicly Traded Companies Who Provide Evidence of Fraud. Criminal Penalties for Defrauding Shareholders of Publicly Traded Companies. TITLE IX. WHITE-COLLAR CRIME PENALTY ENHANCEMENTS. Short Title. Attempts and Conspiracies to Commit Criminal Fraud Offenses. Criminal Penalties for Mail and Wire Fraud. Criminal Penalties for Violations of the Employee Retirement Income Security Act of 1974. Amendment to Sentencing Guidelines Relating to Certain White-Collar Offenses. Corporate Responsibility for Financial Reports. TITLE X. CORPORATE TAX RETURNS. Sense of the Senate Regarding the Signing of Corporate Tax Returns by Chief Executive Officers. TITLE XI. CORPORATE FRAUD AND ACCOUNTABILITY. Short Title. Tampering with a Record or Otherwise Impeding an Official Proceeding. Temporary Freeze Authority for the Securities and Exchange Commission. Amendment to the Federal Sentencing Guidelines. Authority of the Commission to Prohibit Persons from Serving as Officers or Directors. Increased Criminal Penalties under Securities Exchange Act of 1934. Retaliation Against Informants.
