Question

Discuss the major components of the Sarbanes-Oxley Act of 2002 and Corporate Governance?

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Answer 1

Answer-

The legislation came into force in 2002 and introduced major changes to the regulation of financial practice and corporate governance. Named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main architects, it also set several deadlines for compliance.

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.

An over-arching public company accounting board was also established by the act, which was introduced amidst a host of publicity.

  Sarbanes-Oxley Compliance

Compliance with the legislation need not be a daunting task. Like every other regulatory requirement, it should be addressed methodically, via proper analysis and study. Also, like other regulatory requirements, some sections of the act are more pertinent to compliance than others. To assist those seeking to meet the demands of this act, the following pages cover the key Sarbanes-Oxley sections:

· Sarbanes-Oxley Section 302

· Sarbanes-Oxley Section 401

· Sarbanes-Oxley Section 404

· Sarbanes-Oxley Section 409

· Sarbanes-Oxley Section 802

1-Summary of Section 302

Periodic statutory financial reports are to include certifications that:

Over the next few months, many large public companies will likely make a startling announcement about material weaknesses in their systems of internal controls. The problems that these weaknesses recall is like problems found in well known, once high-flying companies such as Lucent, Fannie Mae, and Global Crossing. But lesser-known companies such as Adecco SA, which suffered a 30 percent decline in their stock price on the announcement day, and Mitcham Industries, which lost 22 percent of its equity market value on the announcement day, have had large price declines after publicly disclosing similar.

The Sarbanes-Oxley Act of 2002 also known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox; is a United States federal law enacted on July 30, 2002, in response to several major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. These scandals, which cost investors billions of dollars when the share prices of the affected companies collapsed, shook public confidence in the nation's securities markets. Named after sponsors Senator Paul Sarbanes (D-MD) and Representative Michael G. Oxley (R-OH), the Act was approved by the House by a vote of 334-90 and by the Senate 99-0. President George W. Bush signed it into law, stating it included "the most far-reaching reforms of American business practices since the time of Franklin D. Roosevelt.

The legislation establishes new or enhanced standards for all U.S. public company boards, management, and public accounting firms. It does not apply to privately held companies. The Act contains 11 titles, or sections, ranging from additional Corporate Board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law. Debate continues over the perceived benefits and costs of SOX. Supporters contend that the legislation was necessary and has played a useful role in restoring public confidence in the nation's capital markets by, among other things, strengthening corporate accounting controls. Opponents of the bill claim that it has reduced America's international competitive edge against foreign financial service providers, claiming that SOX has introduced an overly complex and regulatory environment into U.S. financial markets.

The Act establishes a new quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, which is charged with overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies. The Act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure.

Introduction

The legislation came into force in 2002 and introduced major changes to the regulation of financial practice and corporate governance. Named after Senator Paul Sarbanes and Representative Michael Oxley, who were its main architects, it also set several deadlines for compliance. 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. An over-arching public company accounting board was also established by the act, which was introduced amidst a host of publicity.

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