Sarbanes-Oxley Act

Sarbanes-Oxley Act (SOX)

Sarbanes Oxley Act (2002)

- Federal oversight of corporate accounting

- applies to all publicly traded corporations based in U.S. if over 75 million in gross revenue.

- and all foreign companies in U.S. stock exchange

What is Sox?

-Response to corporate scandals:

- created Public Company Accounting Oversight Board (PCAOB)

- monitors firms that audit public corporations

- establishes standards and rules of auditors in public corporations

- board has investigatory and disciplinary over security analysts and auditors who issue reports about corporations

-Requires CFO's and CEO's to certify financial statements

- Requires 'audit committees' with independent members (no financial interest), sit within corporations

- Disallows loans by corporations to board members or officers of the corporation

- Requires each corporation to register a Code of Ethics for Officers with the SEC

- Accounting firms cannot provide both auditing and consulting services to single client, without exception from the clients independent auditors

- Requires attorneys to report wrong doing to managers and board of directors if necessary

- Provides protection from Whistleblowers (a person who informs on a person or organization engaged in an illicit activity.)

- Financial analysts must certify recommendations about the corporation are based on objective information. (not inside information that is not reported to public)

- Requires 'revolving' auditors that move from one account to another over time(can't stay on the same account) (about 6 years)

Is SOX too costly?

-According to the Business Ethics textbook, the cost of compliance with SOX is about 1 million dollars per one billion revenue.

- The costs have caused companies not to list with the SEC and delist in the stock exchange.

- Some start-up companies have not taken off because of demands of SOX is not knowing to them or too great.