Question

What certification requirements does the Sarbanes-Oxley Act impose on corporate executives?

Answer 1

The Sarbanes-Oxley Act intends to increase corporate responsibility by implementing strict disclosure requirements, harsher penalties against legal violations, accountability for financial reporting and requirements for personal certifications by the corporate executives.

The Sarbanes-Oxley Act requires corporate executives to certify that the financial information the organization discloses through its financial statements, fairly represent all the material respects, financial conditions and the results of the operations. This act directly holds the corporate executives accountable for the accuracy of their financial reporting and thus prevents them from using any form of “ignorance defense” if the statements are identified to be having any shortcomings. This act also requires the directors to monitor the officers’ activities. All the members of the corporate audit committee for public firms must thus be outside directors. This audit committee is required by the act to have a written charter that clearly sets out the duties and provides for performance appraisals. This committee, in addition to internal controls, also monitors the actions of the outside auditors.

So, under the section 906 of the act, the corporate executives (CEOs and CFOs) needs to certify financial statements filed with SEC, certifying that these reports fully comply with the SEC requirements and all the information reported in the statements is a fair representation of the company’s financial health.

Under the section 302 of the Sarbanes-Oxley Act, corporate executives need to certify that the signing officer has actually reviewed each quarterly and annual report being filed with the SEC, and it contains no “untrue” statements of material fact. They also are needed to certify that they have established an internal control system where all material information is indentified and any discrepancies in the system are disclosed to the auditors.