Sarbanes-Oxley . . . some simple facts The following information is related to the Sarbanes-Oxley Act: What is Sarbanes-Oxley? Why was Sarbanes-Oxley enacted? Major provisions of the Act Sections within Act outlining compliance Key terms and definitions related to S-Ox What is Sarbanes-Oxley? An act of Congress, signed by George W. Bush, on July 29, 2002, was designed “to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws and for other purposes.” See http://www.aicpa.org/sarbanes/index.asp for more on the act. Why was Sarbanes-Oxley enacted? Sarbanes-Oxley Act (S-Ox) of 2003 was due to the business failures of Enron and WorldCom. Major provisions of the Act: S-Ox has changed the Legal Landscape. The following are major provisions to the act: Creation of a Public Company Accounting Oversight Board New Roles for Audit Committees and Auditors Criminal Penalties Protection for Whistleblowers Financial Reporting and Auditing Process changes Certification by CEO and CFO Sections within Act outlining compliance: Section 302: Addresses the  “Certification of Disclosure in Companies' Quarterly and Annual Reports.” It addresses the rules by which any publicly held company must comply as it relates to the certification of quarterly and annual financial reporting. It is referenced within the act within Title III, Section 302, Release 33-8124.       Section 404: Requires management to assess and make representations about the issuer’s internal control structure and procedures for financial reporting and requires each annual report of an issuer to contain an "internal control report.” It is referenced within the act within Title IV. Enhanced Financial Disclosures, Section 404. Management Assessment Of Internal Controls. Section 906: Outlines criminal penalties associated with non-compliance of certain requirements in the act; however, there are no SEC rules and regulations regarding this section. It is referenced within the act within Title IX, Section 906. Key terms and definitions: Certify or certification: Per www.webster.com, “To confirm; to attest as being true or as represented; to assure or to guarantee.” In relationship to the Sarbanes-Oxley Act, the definition is the “validation that internal controls are performing adequately and as intended.”   This certification (or "to certify") is also referred to as “signing-off to #302.” Certifying to Section #302: In order for the principle executive and the financial officers to comply with Section #302 of Sarbanes-Oxley, they must “sign-off” on the #302 Certification Statement. This statement must be included in the quarterly and annual SEC reporting. Controls (see “internal control”). Corporate governance: Addresses how a Board of Directors oversees management, making sure the company is run well and that shareholders are treated fairly. It requires the board maintain independence from company management. COSO: Refers to a framework (or methodology) of internal control. This internal control framework is published and supported by the organization, COSO. This framework is referenced within the S-Ox Act as a methodology to comply with this law. COSO is an abbreviation for “The Committee of Sponsoring Organizations of the Treadway Commission.” Internal control: The process of providing reasonable assurance that the following are being managed and monitored: Financial Reporting, Compliance, and Efficient Operations of the company. Any control that a company has determined to be critical to effectively certifying each quarter (and annually) will need to have a process in place to evaluate compliance. See more on how Aldridge, Kerr can assist your organization in implementing Sarbanes Oxley. Contact us at Questions@aldridgekerr.com for more information on the other services we provide.
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