Sarbanes-Oxley

Securities Ex limiting military mission is the highest authority which administers and monitors the size up of U. S Listed Companies at NYSE, NASDAQ and Dow Zones. All U. S. Listed Companies which get traded at U. S. bourses, cod to comply with the FASB rules and practice GAAP standards of account. Non- complaisance to whatever of the auditing rules prescribed by GAAP would be bad viewed. U. S. federal official Government works in the interest of worldly concern investors and it expects altogether in e precise public companies to work in a transp bent method by disclosing fair transactions in one-year monetary statements of all public companies.Particularly, with the collapse of Enron, which is the worlds largest corporation, which floor the entire unified world, with the clean opinion of friendships auditor. , Arthur Anderson. The violence present is more(prenominal) on auditing committees and board of directors of the compevery who must(prenominal)iness go i nto and work without any prejudicial interest, with the fact that Board of Directors are the fiducial send officers of a company who work and intermediate between shareholders and management of the company whereas hearers are the representatives of public investors who must in all respects nurture and safeguard the investments of public.In spite of highly qualified CFOs, COOs and CEOs, who are penalized for locomote crash of the non-compliance, officers too invite criminal charges. In hunting lodge to preclude future s ejectdals in bodied America and excessively to protect all the investments of investors, President Bush signed the law of SOX on 30th July, 2002 and it was passed with Congress for unanimous support. For the common investor, SOX is a great saver and likewise enables complete transparency slightly a public listed company. Further this is besides in the interest of Federal Government whose responsibility to safeguard the global businesses and nations econ omy.Discrepancies found in Enron that determined foundation to SOX Enron filed loser in the year 2001 and the companys share dropped down from $ 90 per share to $ 0. 30 cents per share. Fortune magazine named Enron as Americas most innovative Company. Enron had nearly $ 101 billion revenues antecedent to the filing of bankruptcy and it was the most successful company in get together States in supplying electricity and natural gas. Surprisingly, all the credit grade agencies viz. , S&P, Moodys Investors Service, Fitch Rating live given all good credit ratings until Enrol filed Chapter 11. consort to SOX declareage standards , some of the discrepancies found in Enron are viz. , successive resignations of management, imprecise and unreliable financial statements, CEO stock sales during blackout period, nondisclosure of preferably CEO stock sales, off-balance sheet transactions to hide losses, destruction of bread and butter and rigging of ratings. After three months of coll apse of Enron, some other giant mesh company Global Crossing Ltd. , filed its bankruptcy indicating its financial condition.WorldCom followed by Tyco went solely bankrupt indicating disability to run the companies any longer. One common part in all of the above companies, is either mismanagement or non-practice of skipper accounting procedures which yielded the companies to its last stage of fate and certainly, this could yield been prevented by methodical and professional accounting procedures particularly with the authentication and certification of visitors who in all probability are relied upon by the SEC and Federal Government.Therefore, the emphasis here is that auditors have to be free and fair in certifying the financial statements and in order to thoroughly screen the public companies, without leaving any field for fraudulent account procedures, U. S. Government has initiated SOX law in the year 2002. (Jill gilbert Welytok Sarbanes-Oxley for Dummies) Literature Rev iew What is SOX law? Sarbanes-Oxley tour of 2002 also called as SOX is mandatary for all organisations including large and small.This legislation is aimed at enforcement of financial practices, regulations and to ensure corporate governance. Sarbanes-Oxley is named after Senator Paul Sarbanes and Representative Michael Oxley, who were main designers in setting itemise of deadlines for the compliance of legislation. SOX is arrnaged in eleven titles. Some of the most importance sections with count on to the compliance are sec. 302, 401, 404, 409, 802 and 906. Compliance by means of SOX has to be performed methodically, through straightlaced analysis and study.After a thorough work, SOX leaves no scope for any fraud or misre institution of facts and figures and by far, it recommends all the organisations to act in a credible manner stating that dont put off until tomorrow what can be done today in order to save companies and also refraining from adverse consequences caused by len ient views either by audit committees or by the management of the companies. SOX has helped many companies to draw bring in from the compliance of regulations as it provides a clear picture of financial lieu of the company and to those who would like to have to access to the information more or less a particular company.Further, this also helps the U. S Government to keep a sleepless eye on the financial status of companies and keeps a vigilance on the financial system of companies. (A guide to the Sarbanes-Oxley make believe 2002) Methods Section 302 of SOX This section is listed at a lower place(a) act III of the guess and details some Corporate right for Financial Reports. Section 302 states that periodic filing of statutory financial reports should be certified by the signing officers who must review the report. The report must not contain any untrue or false statements or omissions or misleading statements.The financial statements must state only link up information which is fairly presented and must also reflect on the financial condition of the company and must also details the results of all visible facts and aspects. The signing officers are responsible for all inside reigns and must pronounce these inwrought withstands within previous 3 months and must have describe on the findings. A list of all deficiencies if any found, in the internal controls or any fraud information that involves the employees of the company who are complicated in internal activities must be stated.Any significant change or observation made by the signing officers, within internal controls which can negatively impact must be reported by the officers. All the provisions of this Section cannot be avoided by transferring or reincorporating the activities of a company outside unite States. Whether company is operating within United States or outside United States, must comply with this Section as a registered company down the stairs Securities swop delegatin g. (A guide to Sarbanes-Oxley Act 2002, stocky of section 302) Section 401 of SOXThis section is listed under Title IV of the Act and discusses about Disclosure in Periodic Reports. Financial statements published must be accurate and must not contain any erroneous statements or admit the fact that material information is stated. Financial statements apart from regular Profit & Loss Account and Balance Sheet, also accommodate off-Balance Sheet liabilities, obligations or any transactions. To this effect, the Commission would study and report with a complete analysis of off-Balance Sheet transactions and to what extent these are transparent.The Commission has also to decide whether GAAP principles or any other regulations are resulting in its reporting. Section 404 of SOX This section is listed under Title IV of the Act and discusses about Management Assessment of Internal Controls. All Annual Reports of companies have to publish information about the scope and adequacy of the in ternal control structure and other procedures with regard to financial reporting. This statement must also con house the long suit about internal controls and procedures.A registered accounting firm can also attest and report on the assessment and about effectiveness of the internal control procedures for financial reporting. Section 409 of SOX This section is listed under the Title IV of the Act and details about Real sentence Issuer Disclosures. Issuers are required to provide information on material changes pertaining to financial conditions or changes. Public must have access to information on urgent basis and no delay can be made. These disclosures have to be presented in an easy and understanding manner and the information should be qualitative with graphic presentations as required.Section 802 of SOX This section is listed in Title VIII of the Act and pertains to the Criminal Penalties for Altering Documents. This section states that penalties and finelys or imprisonment up to 20 years is levied on the persons who are responsible for altering, destroying, concealing, defense records or documents or tangible objects. This act done either with an pattern to obstruct, impede or to influence a legal investigation is seriously viewed by the SOX officers.Further this section also imposes penalty or fine or imprisonment up to 10 years on any accountant who knowingly or willfully violates the provisions of this section or violates the maintenance of audit or review of papers for a period of 5 years. Discussion SOX is divided into many parts and each part carries certain specific rules and regulations which are prescribed for easy understanding of corporates. SEC-Rules states about SOX SEC Rules and Regulations, which states that officers have to certify about the maintenance, regularity and establishment of effectiveness of the issuers internal controls.IC-Primer states about internal control framework, risk control, assessments, audit programs relating t o Sections 302 and 404 regarding Certification of Disclosure and Managements Internal Controls and Procedures. This framework established by COSO/SAS-78. SOX Act 2002 is aimed at to improve the quality and transparency in financial reporting, individual audit and accounting services for public companies and also to create a Public Company Accounting Oversight Board, to work towards setting up of standards for best accounting practices and also to strengthen the independence of audit firms who audit public companies.Further SOX is aimed at to increase the corporate responsibility and the utilizable advantages of financial disclosure, to protect the independence of securities analyst and also to improve the Securities and Exchange Commission re inaugurations for all purposes. SOA-Manual lists all the key dates and timetable, self-assessment questionnaires, definitions relating to Titles II and III regarding Auditor Independence and Corporate Responsibility.Forms have to be prepared independently or by the assistantship of a practitioner who is engaged to perform accounting compliance services. (Sarbanes-Oxley Act 2002, Financial and Accounting Disclosure Information) According to Pricewaterhouse Coopers Report 2006, Audit Committees Effectiveness, what works best focus and emphasis is more on financial statements, compliance and ethics, relationship with external auditors, risk management and internal control which discuss as to how effective practice of auditing can be conducted in organizations.There is also an emphasis about external auditing and internal auditing which is conducted sporadically within the internal environment by internal audit committees and whose report can reveal much accounting information about the recording of business transactions of organizations. After the year 2002, which witnessed the unfortunate events in U. S. corporate domain, the entire corporate world, stood up for more accuracy and correct presentation in financial state ments.A quote which states prevention is better than heal which is applicable in health, is also now applicable to corporate sector with the fact that, companies would never reach to the last stage of liquidation or bankruptcy, if the companies had been properly conducting internal audits and external audit, and thoroughly complying with the auditing procedures and has been GAAP accounting practices, wrap up state-of-affairs could have been prevented and many companies could be saved.Another development in the corporate sector that is to be noted is, loss making companies or companies that are performing low in business, are finding many potency ways to save the companies by mergers or acquisitions. In the recent years, end-to-end the world thither have many mergers and acquisitions (M&A). For example Daimler-Benz is now called as DaimlerChrysler, JP Morgan & Chase Co. , purchased Bank One Corp, CitiCorp purchased Travelers Group, AT&T Inc purchased Bell southern Corporation.I t can be stated here that, M&A action saved many companies in the past decade and even saved jobs of many people. Apart from M&A activity, SOX Act is equally protect companies and public investments and there can be absolute assurance about the compliance of SOX regulations. This is due to the fact SOX aims at checking the fraudulent working of organizations. From another angle, SOX Act credibility is also being questioned by the legislative government and another alternative is also being looked for future business regulations.According to the authorities, who believe that the advantages of SOX would never last long which is why another source of compliance is being searched. (How Does The Sarbanes-Oxley Act Impact American Business? ) However, the Federal Government continues to update SOX mandates and in the year 2007, U. S. Securities and Exchange Commission (SEC) canonic new auditing standard for internal controls. In order to bring more awareness about auditing, SEC and PCA OB are encouraging auditors to undertake risk-based get in the evaluation of internal controls on financial reporting of public companies.There are many benefits from SOX compliance such as findings can be used in evaluations, it would reduce the costs associated with risk assessment, it would also reveal the risks that an organization is confronted with and the remedial measures available to manage risk, help companies to pay back groundwork for risk assessment and to introduce more regulations and specifications and further a risk management program can be developed through SOX compliance.As stated above the success of SOX is quite benefiting to both American companies as well U. S. Federal Government with the fact that SOX identifies assets and activities, monitors the activities and ensures accuracy in financial statements which is the most important activity in checking the health of a listed company. Access to data wherever required demonstrates and indicates the practice o f Accounting Standards harmonize to FASB Rules and it reveals complete business transactions of a company.SOX can also go back entire events, records, commands given to data server and find out whether there is any mismanagement, forgery or fraudulent activity in the accounting procedures. SOX also generates audit reports which gives a full length of information about each and every company. The information that is provided by SOX enables Government to take needful steps to issues notices or memos to U. S companies to make necessary corrections wherever required and can also provide plans for remedial measures to save the companies from liquidation.SOX is a wake up call for many American businesses and also to all those foreign companies which are venturing into business with American companies. Conclusion SOX continues to keep the companies under check and investigation about the compliance of accounting procedures as laid in FASB Rules and also about the compliance of auditing p rocedures in internal controls. It is very difficult for American companies to evade any procedures which come under the celestial horizon of SOX and therefore, there is expected to be a neat and clean organizations with sharp auditing committees.