Question

Select one of these provisions of Sarbanes Oxley Act: 302; 401; 402; 806; and 906. Write a brief description of the requirements of that section of the Act and briefly describe processes that a company would put in place to meet the requirements.

Answer 1

SECTION 402 of the Sarbanes- Oxley Act prohibits U.S and foreign companies with securities traded in the U.S from providing or arranging personal loans to directors and executive officers. This was necessary to address the concerns of company funds being provided to insiders. Section 402 makes it unlawful for any company to directly or indirectly, including through its subsidiaries to extend and/or arrange credit or to renew an extension of credit to any director or executive officer. The ban also covers guarantees by the company of third party loans.

The Companies must strengthen its audit committee. It must stringently perform internal control tests and make directors and officers personally liable for any lapse. The company must ensure that advances of cash such as travel expenses given while performing executive responsibilities must be reasonable, not be used for any personal expense and any unused advance must be reimbursed to the company immediately after the completion of the task.