Sarbanes Oxley

Under Section 302 what did it require the company's CEO and CFO to do?

1. Certify the quarterly and annual reports do not contain any materially untrue statements or half-truths. 2. Based on their knowledge the financial information is fairly presented 3. Responsible for the companies internal financial controls and that they have evaluated the effectiveness of such controls 4. They have reported any weaknesses in the controls and any fraud to the auditors and audit committees.

The Code of Ethics under section 406 is to address what matters?

1. Conflict of Interest 2. Accurate Financial Reporting 3. Compliance with government rules and regulations

What are some of the steps that SOX took to address securities fraud?

1. Created an entirely new securities fraud crime 2. Created a new crime for conspiring to commit securities fraud 3. Increased the penalties 4. Lengthened statue of limitation for civil damages 5. Directs the US Sentencing

What are the resolutions or requirements under Section 404?

1. Each annual report must contain an "internal control report" 2. Outside auditors are required to evaluate the internal control assessment of the company as well as financial statements.

The SOX act enhances financial disclosure requirements such as what three things?

1. Reporting off balance sheet transactions 2. Prohibiting personal loans to execs and directors 3. Requiring auditors to assess and report upon internal controls.

What must companies disclose that might have a material impact on the financial statement?

All material off-balance sheet transactions, arrangements, obligations, and other relationships with unconsolidated entities.

What issue is at the center of the Sarbanes Oxley Act?

Auditor Independence

What is the Solution under Section 402 of SOX?

Companies are Prohibited from making personal loans to executive officers and directors (this eliminates any conflicts of interest)

What solution was generated under section 406 of SOX?

Companies must disclose whether they have adopted a Code of Ethics for CEO and Senior Financial officers

What was the Issue that sparked Section 304 of SOX?

Corporate Execs reaped benefits for their misconduct

Under SOX, the audit committee must have at least one what?

Financial Expert

What is the major issue under SOX Section 404?

How do CEOs and CFOs know that the information that they certify is reliable?

What is the major issue addressed under Section 906?

Inaccurate reports filed with the SEC

SOX requires that public companies have audit committees composed of what?

Independent Director At least one Financial Expert

Section 906 adds a criminal provision punishing these officers if they ______________ certify SEC filings containing financial statements

Intentionally

What is the Solution under Section 306 of SOX?

It Prohibits directors and executive officers from buying or selling company stock during a pension fund "blackout" period.

What does the Sarbanes Oxley Act do?

It amends the securities laws to provide better protection to investors in public companies by improving financial reporting of companies.

What did SOX do to increase the independence of auditors?

It forbid auditors of public firms from providing to their audit clients most nonaudit consulting services.

Companies are required to disclose "Non-GAAP Financial Measures", what does this mean

Non-GAAP financial measures are used by companies to bridge the divide between corporate reporting that is standardized under GAAP and reporting that is tailored to a particular industry or circumstance.

Under section 404 the "________" must approve the internal controls

Referees

Which section in SOX is by far the most controversial?

Section 404

If companies have not adopted a code of ethics what must they do?

State why

Section 906 of the SOX is known as the what?

"Third leg of the stool"

How much can members of the round table of a corporation expect to pay for failing to comply with SOX?

$1 million to $10 million

One study found that the average cost for internal control compliance was how much?

$3.1 million

What is the Solution under Section 304of SOX?

CEO and CFO MUST Reimburse their companies for any bonus or other incentive based compensation earned, or trading profits received in the 12 month period following financials that are restated as a result of misconduct. Only applies to CEOs and CFOs

What is the solution or requirements of CEOs and CFOs under Section 906?

CEOs and CFOs must certify that the quarterly and annual reports are accurate

Section 906 brings down the hammer on CEOs and CFOs who do what?

Certify fraudulent financial reports

Corporations under SOX must disclose whether or not they have adopted a __________ __ ____________, if not provide an explanation why not.

Code of Ethics

SOX requires companies install a _____ __ ______ for top financial officers or explain why they have not done so.

Code of Ethics

What issue is addressed in Section 406 of SOX?

Code of ethics were waived for company employees like Enron CFO Andy Fastow.

Under Section 302 of SOX, what is the major issue or problem?

Corporate Management has primary responsibility for; 1. Preparing financial statements 2. creating programs/systems of control to ensure accurate information finds it way on those statements

What was the Issue that sparked Section 306 of SOX?

Corporate execs sold securities while other employees had shares tied up in pension funds during a blackout period

What was the Issue that sparked Section 402 of SOX?

Executives did not repay loans when companies went under

What influence does SOX have on the SEC?

It enlarges its budget and grants it new authority and powers such as the ability to ban individuals temporarily or permanently from being officers of directors of public companies w/o court order and power to freeze accounts so wrongdoers cant go away with money.

What does the PCAOB do?

it registers, inspects, and disciplines American and foreign accounting firms that audit public companies accessing American capital markets and establishes or supervises the establishment of accounting, auditing an ethical standards

The Sarbanes Oxley Act created a new federal agency called?

the PCAOB

SOX contains two provisions requiring the CEO and CFO to do what?

they certify that, to the best of their knowledge, the filings their companies, make with the SEC are accurate.

What are the responsibilities of the audit committees under SOX?

1. Authority to select, evaluate, compensate and terminate their firms' outside auditors 2. Responsibility to receive communications from auditors about key accounting issues. 3. Obligation to establish procedures to process the complaints of whistle blowers.

Described in Section 404 of SOX, what is the "best practices" for financial controls?

1. Disclosure committee to review procedures/processes 2. A Disclosure Coordinator (one contact person0 3. Time line and responsibility report 4. Established document procedures 5. Lots of consultation with internal audit and outside advisors 6. Sub certifications 7. Codes of Conduct for accounting and financial employees.

When you have a Code under section 406 it must do what two things?

1. It must be publicly available 2. It must disclose any waivers of Code

What are some of the ways that SOX tries to ensure auditor independence?

1. Limit the nonauditing services and auditor can provide 2. Requires auditing firms to rotate the auditors with specific companies 3. Makes is unlawful for accounting firms to provide services where conflicts of interest exist.

What are some of the "Enforcements" of SOX?

1. Violation of SOX is violation of Exchange Act 2. Grants SEC temporary freeze authority over payments to persons suspected of violating securities laws. 3. Lowers threshold of conduct for director or officer which may prohibit that person from being one at any public company 4. Adds equitable relief to the list of remedies that the SEC may seek under the Exchange Act

What two things must be included in the internal control report required under section 404?

1. it must state the responsibility for management for establishing and maintaining an adequate internal control structure so that accurate financial statements could be produced. 2. It must contain an assessment, as of the end of the most recent fiscal year, of the effectiveness of the internal control structure and procedures.

Under section 906 this provision should clearly focus the minds of CEOs and CFOs and remind them every quarter that their job is to sign "_________" financial statements, not just those signed off by auditors.

Accurate

When looking at SOX, what does Internal Control mean?

It is a process designed by, or under the supervision of, the company's principle executive and financial officers, or persons performing similar functions, and effected by the company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP

Under SOX it is a crime to alter, destroy, conceal, cover up or falsify documents to prevent its use in a federal government law suit. True or False

TRUE

Who is responsible for financial representations of the company?

The CEO and CFO

Under SOX what must SEC review when looking at disclosure requirements?

The SEC must review diclosures made by NYSE, Nasdaq, or AMEX; listed companies on a regular basis, including review of financial statements

What is the punishment of "Knowing Violations" under Section 906?

Up to $1million and 10 years in prison

What is the punishment of "Willful" under Section 906?

Up to $5million and 20 years in prison

Companies are required to protect what group without fear of retaliation?

Whistleblowers

SOX not only looks out for the ________________ but creates a civil cause of action for some of those who are punished or retaliated against.

Whistleblowers

What group is afforded protection under SOX?

Whistleblowers

SOX created three new provisions to punish for _____ ______ that might be useful in a federal investigation?

document destruction