Sox Ethics

Ethics Evolution in the Era of SarbanesOxley

Winter 2012 By Ibolya Balog, CPA The approaching 10th anniversary of the Sarbanes-Oxley Act of 2002 is an opportune time to review the changes in corporate governance over the past decade. The enactment of this legislation, following several highly publicized fraud scandals, had been the most significant legislation affecting public companies since the securities acts of the 1930s.1 Corporate governance covers an array of distinct concepts, according to the definition adopted by the Organization of Economic Cooperation and Development (OECD). It says, “Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders, and other stakeholders, and spells out the rules and procedures for making decisions in corporate affairs.” Sarbanes-Oxley defined new rules pertaining to various aspects of governance reflected in this definition, as well as created the Public Company Accounting Oversight Board and specified auditor independence requirements. Sarbanes-Oxley Section 406 – and the Securities and Exchange Commission’s (SEC) final rule on the implementation of this section – requires SEC registrants to report whether they have adopted a written code of ethics covering principal executive officers, financial officers, accounting officers, and controllers, or individuals performing such functions. Amendments to the code of ethics covering the responsible individuals and waivers, if any, must be promptly disclosed. The purpose of a written code of ethics is twofold: to deter wrongdoing and to promote ethical conduct. The code of ethics has to provide a means of dealing with actual or apparent conflicts of interest; ensuring compliance with applicable laws, rules, and regulations; prompting internal reporting of...