Question

The Sarbanes-Oxley Act is arranged into eleven titles. As far as compliance is concerned, the most important sections within these are often considered to be 302, 401, 404, 409, 802 and 906. in your own words, what are this sections about? please no copy and paste, explain with your own words, and no handwriting please, thanks!

Answer 1

ANSWER:-

The Sarbanes-Oxley Act was designed to improve the quality of financial reporting by public companies. It was written in response to the fraudulent reporting of Enron Corporation, Worldcom, and several other businesses, and was passed in 2002. Key provisions of the Act are as follows:

The CEO and CFO must certify the accuracy of the financial statements (Section 302):-

Periodic statutory financial reports are to include certifications that:

• The signing officers have reviewed the report
• The report does not contain any material untrue statements or material omission or be considered misleading
• The financial statements and related information fairly present the financial condition and the results in all material respects
• The signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings
• A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities

It is illegal to improperly influence how an audit is conducted (Section 303).

• section 303 of the Sarbanes-Oxley Act of 2002, we are adopting rules to prohibit officers and directors of an issuer, and persons acting under the direction of an officer or director, from taking any action to coerce, manipulate, mislead, or fraudulently influence the auditor of the issuer's financial statements if that person knew or should have known that such action, if successful, could result in rendering the financial statements materially misleading.

Material off-balance sheet items must be disclosed (Section 401).

• Financial statements are published by issuers are required to be accurate and presented in a manner that does not contain incorrect statements or admit to state material information.
• These financial statements shall also include all material off-balance sheet liabilities, obligations or transactions.
• The Commission was required to study and report on the extent of off-balance transactions resulting transparent reporting.

Management must establish internal controls and report on their scope and accuracy, while the company's auditors must certify the reliability of those controls (Section 404).

• Issuers are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. This statement shall also assess the effectiveness of such internal controls and procedures

Substantial fines are imposed on anyone falsifying, stealing, or destroying records (section 802).

• This section imposes penalties of fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation.
• This section also imposes penalties of fines and/or imprisonment up to 10 years on any accountant who knowingly and wilfully violates the requirements of maintenance of all audit or review papers for a period of 5 years

Provides for the protection of whistleblowers from retaliation (Section 806).

• Under Section 806 of SOX, an employee engages in protected whistleblower conduct by providing information that he or she reasonably believes is a violation of:
• federal mail, wire, bank, or securities fraud. federal law relating to fraud against shareholders
• any rule or regulation of the Securities and Exchange Commission (SEC)
• Section 806 of SOX extends its protection to any whistleblower who is an officer, employee, contractor, subcontractor, or agent of:
• a publicly traded company
• a subsidiary of a publicly traded company
• a nationally recognized statistical ratings organizations (NRSROs)
• Section 1107 of SOX makes it a crime for a person to knowingly retaliate against a whistleblower for disclosing truthful information to a law enforcement officer regarding an alleged federal offense.

Sets criminal penalties when corporate officers do not certify the accuracy of the financial statements (Section 906)

• .It’s paragraph “(c)” in section 906 where penalties for violations are recorded. These penalties are for either;1. Knowingly certifying a report that does not “comport” with the requirement of section 9062. Willfully certifying a report that does not “comport” with the requirement of section 906

EXAMPLES:-

• The fine for a knowing violation will be “not more” than $1,000,000 or imprisoned “not more” than 10 years in prison, or both. A willful violation is significantly more costly at “not more” than $5,000,000 or 20 years in prison, or both.

The provisions of the Act made it significantly more expensive for firms to be publicly-held. The result was a decline in the number of public companies, especially among the smaller firms that could no longer afford the regulatory costs associated with being publicly-held. In particular, the requirements of Section 404 were considered to have the largest impact on the cost increase.

The official name of the Sarbanes-Oxley Act is the Corporate Responsibility Act of 2002.