Description
This is a PPT explaining about Sarbanes Oxley Act in detail.
Sarbanes–Oxley Act
• Also known as the 'Public Company Accounting Reform and Investor Protection Act' • 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes– Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002. It is named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). • The act significantly raises criminal penalties for securities fraud, for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders
• The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. • The legislation set new or enhanced standards for all U.S. public company boards, management and public accounting firms • It does not apply to privately held companies • 11 specific mandates and requirements for financial reporting
ASPECTS
• • • • • • • • Public Company Accounting Oversight Board Auditor Independence Corporate Responsibility Analyst Conflicts of Interest Commission Resources and Authority Corporate and Criminal Fraud Accountability White Collar Crime Penalty Enhancement Corporate Fraud Accountability
COST BENEFITS
• The 2007 study indicated that, for 168 companies with average revenues of $4.7 billion, the average compliance costs were $1.7 million (0.036% of revenue) • Survey scores related to the positive effect of SOX on investor confidence, reliability of financial statements, and fraud prevention continue to rise • SOX 404 indeed led to conservative reported earnings, but also reduced—rightly or wrongly—stock valuations of small firms. • Lower earnings often cause the share price to decrease.
IMPORTANT SECTION
• The signing officers must certify that they are “responsible for establishing and maintaining internal controls” and “have designed such internal controls to ensure that material information relating to the company and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared • The officers must “have evaluated the effectiveness of the company’s internal controls as of a date within 90 days prior to the report” and “have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date
GUIDELINES
• Assess both the design and operating effectiveness of selected internal controls related to significant accounts and relevant assertions, in the context of material misstatement risks; • Understand the flow of transactions, including IT aspects, sufficient enough to identify points at which a misstatement could arise; • Evaluate company-level (entity-level) controls, which correspond to the components of the COSO framework; • Perform a fraud risk assessment; • Evaluate controls designed to prevent or detect fraud, including management override of controls; • Evaluate controls over the period-end financial reporting process; • Scale the assessment based on the size and complexity of the company; • Rely on management's work based on factors such as competency, objectivity, and risk; • Conclude on the adequacy of internal control over financial reporting
doc_734428403.pptx
This is a PPT explaining about Sarbanes Oxley Act in detail.
Sarbanes–Oxley Act
• Also known as the 'Public Company Accounting Reform and Investor Protection Act' • 'Corporate and Auditing Accountability and Responsibility Act' and commonly called Sarbanes– Oxley, Sarbox or SOX, is a United States federal law enacted on July 30, 2002. It is named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH). • The act significantly raises criminal penalties for securities fraud, for destroying, altering or fabricating records in federal investigations or any scheme or attempt to defraud shareholders
• The bill was enacted as a reaction to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. • The legislation set new or enhanced standards for all U.S. public company boards, management and public accounting firms • It does not apply to privately held companies • 11 specific mandates and requirements for financial reporting
ASPECTS
• • • • • • • • Public Company Accounting Oversight Board Auditor Independence Corporate Responsibility Analyst Conflicts of Interest Commission Resources and Authority Corporate and Criminal Fraud Accountability White Collar Crime Penalty Enhancement Corporate Fraud Accountability
COST BENEFITS
• The 2007 study indicated that, for 168 companies with average revenues of $4.7 billion, the average compliance costs were $1.7 million (0.036% of revenue) • Survey scores related to the positive effect of SOX on investor confidence, reliability of financial statements, and fraud prevention continue to rise • SOX 404 indeed led to conservative reported earnings, but also reduced—rightly or wrongly—stock valuations of small firms. • Lower earnings often cause the share price to decrease.
IMPORTANT SECTION
• The signing officers must certify that they are “responsible for establishing and maintaining internal controls” and “have designed such internal controls to ensure that material information relating to the company and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared • The officers must “have evaluated the effectiveness of the company’s internal controls as of a date within 90 days prior to the report” and “have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date
GUIDELINES
• Assess both the design and operating effectiveness of selected internal controls related to significant accounts and relevant assertions, in the context of material misstatement risks; • Understand the flow of transactions, including IT aspects, sufficient enough to identify points at which a misstatement could arise; • Evaluate company-level (entity-level) controls, which correspond to the components of the COSO framework; • Perform a fraud risk assessment; • Evaluate controls designed to prevent or detect fraud, including management override of controls; • Evaluate controls over the period-end financial reporting process; • Scale the assessment based on the size and complexity of the company; • Rely on management's work based on factors such as competency, objectivity, and risk; • Conclude on the adequacy of internal control over financial reporting
doc_734428403.pptx