Sarbanes-Oxley Act

Sarbanes-Oxley Act

Introduction

The Sarbanes-Oxley is a U.S. federal law that has generated much controversy, and involved the response to the financial scandals of some large corporations such as Enron, Tyco International, WorldCom and Peregrine Systems. These scandals brought down the public confidence in auditing and accounting firms. The law is named after Senator Paul Sarbanes Democratic Party and GOP Congressman Michael G. Oxley. It was passed by large majorities in both Congress and the Senate and covers and sets new performance standards for boards of directors and managers of companies and accounting mechanisms of all publicly traded companies in America. It also introduces criminal liability for the board of directors and a requirement by the SEC (Securities and Exchanges Commission), the agency responsible for regulating the securities market in the United States. Supporters of this law argue that the legislation was necessary and useful, while critics believe it will cause more economic damage than it prevents.

The first and most important part of the Act establishes a new agency private non-profit, "the Public Company Accounting Oversight Board," i.e., a company responsible for reviewing regulatory, regulate, inspect and penalize companies for audit. Act also refers to the independence of the audit, corporate governance and financial transparency. It is considered one of the most significant changes in corporate law, from the "New Deal" of 1930.

Major points in Sarbanes-Oxley

The formation of "Public Company Accounting Oversight Board" (Commission to oversee the audits of publicly traded companies).

The requirement that committee, which comprises the audit committee, has the responsibility to confirm the independence.

Ban on personal loans to directors and executives.

Information transparency of actions and options of the company in question, which may have managers, executives and key employees of the company and consortia, in the case of having more than 10% of shares in the company. Furthermore, these data should be reflected in the reports of the companies.

Hardening of the liability and penalties, for breaches of the Act is lengthened prison sentences and fines for executives who fail and / or permit the breach of the requirements in relation to the financial report.

Protections for employees of corporate fraud case. OSHA (Office of Employment and Health) will provide within 90 days of reinserting the worker, provides for compensation for damages, return of the defrauded money, spending on lawsuits and other costs.

Fundamental Causes that have affected the implementation costs

The auditors have been forced to adopt new mechanisms and measures to adapt to the new situation. This has meant an increase in fees and commissions of the audit. The three most important causes, are identical for both groups of companies, depending on the size but the proportions are different. The main reason which made the second year of implementation of the Law diminishes the costs of implementing the new legislation was the result of applying what they learned the previous year. The large investment in learning was the first year, and the second was already part of the journey. Many of the reports had to be made in ...