Question

Under the provisions of the Sarbanes-Oxley Act of 2002 (SOX), the Audit Committee of a public company has specific guidelines that must be adhered to. Discuss some of the mandated features of the Audit Committee of a public company under SOX.

Answer 1

Answer:-

The Public Company Accounting Reform and Investor Protection Act of 2002 is commonly called SOX or Sarbanes – Oxley Act. It is a United States federal law passed in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, and WorldCom which have resulted in a decline of public trust in accounting and reporting practices. This Act establishes new or enhanced standards for all U.S. public company boards, management, and public accounting firms. The Act plays a vital role in the globalised environment of Financial Reporting, Auditing and corporate Governance.

Some of the mandated features of the audit committee of a public company under SOX are:-

1) The audit committee to be more independent through enhancement of their over sight responsibilities and one of the Audit committee members to be financial expert.

2) Requires CEO & CFO to issue certification of the quarterly financial results and annual reports to Security and exchange commission (SEC) as part of compliance.

3) Provides rules of conduct for companies managerial and their officers regarding Pension matters.

4) Strict reporting by an auditor on insider trading.

5) If there is any conflict between company and its auditor, the Audit Committee should be empowered to resolve the same.

6) To include effectiveness of Internal Control System in the financial reporting.

7) To Comply with SEC rules requiring attorneys to report violation of securities laws to the company’s CEO or chief legal counsel & to Audit Committee if no action is taken.

8) Whether there was sufficient time to discuss issues and maintain a sufficient dialog between the gatekeepers of the information. The results of this periodic evaluation should be discussed with the CEO, CFO, the board of directors and the audit committee.