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Sarbanes Oxley Act

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Sarbanes Oxley Act. General Provisions of S/Ox. To make rules governing audits of public companies ... Self-funded through fees assessed on CPA firms and ... – PowerPoint PPT presentation

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Title: Sarbanes Oxley Act


1
Sarbanes Oxley Act
2
General Provisions of S/Ox
  • To make rules governing audits of public
    companies
  • To oversee audits and audit firms
  • Independent of Federal Government
  • Self-funded through fees assessed on CPA firms
    and publicly traded companies
  • Not applicable to NFP or foreign listed companies

3
Governing Members
  • Five Members, three of whom must NOT be CPAs
  • If the chair is a CPA, that person must be out of
    the business of auditing for the prior 5 years

4
PCAOBs Duties
  • Write audit standards, temporarily they have
    adopted the AICPAs
  • Register public CPA firms to do audits
  • Set Quality Control standards for audits
  • Do peer reviews of CPA firms at least every
    three years
  • Investigate and discipline
  • CPE
  • Review company disclosures and financial
    statements at least every three years

5
Provisions for CPA firms
  • Maintain audit papers for 7 years
  • Managing Partner rotation every 5 yrs.
  • Second partner rotation every 5 yrs.
  • Audit manager rotation every 7 years
  • Reports to audit committee
  • All material findings
  • Disclose fees for all types of services in proxy
    statement
  • Review disclosures of firm
  • Attest to Internal Control of firm

6
Independence Rules
  • Cant do other types of work for clients, de
    minimus exceptions
  • Bookkeeping
  • Systems design
  • Valuation services
  • Actuarial services
  • Internal audit
  • Management functions
  • Other work needs pre-approval by audit committee
  • Cant do audit if CEO, CFO from their firm, 1
    year wait period

7
Audit Committee Reports
  • All critical accounting policies
  • Alternate treatments
  • Internal Control findings
  • Engagement letter
  • Independence letter
  • Management representation letter
  • Material weaknesses

8
Corporate Provisions
  • Corporate Officers
  • Certify means they have
  • Reviewed the reports
  • Reviewed internal control
  • Certify that there are no material weaknesses
  • Certify that there is no fraud
  • Report fairly presents the financial condition
    of the company

9
Corporate Provisions
  • Corporate Officers
  • Cant influence audit
  • No trading during blackout periods
  • In pro-formas, no material untrue statements,
    reconciliation
  • No officer loans
  • File any trading information within two business
    days
  • Code of ethics
  • Disclose off-balance sheet financing
  • Disclose any non-GAAP financial measures

10
Corporate Provisions
  • Audit Committee of Board
  • Responsible for oversight of external audit
  • Be independent of the firm
  • Set up whistle-blowing provisions
  • One must be financial expert

11
Penalties
  • General penalties
  • If alter, destroy, cover-up or falsify documents
    with objective to hinder investigation fines
    and up to 20 years

12
Penalties Corporate Officers
  • Give back to firms any bonuses, incentive
    compensation or equity based compensation earned
    within 12 months
  • Give back profit on sales during blackout period
  • False certification - 1m and up to 10 yrs.
  • Willful false cert. - 5 m and up to 20 yrs.
  • Company can hold up any payments to officers

13
Penalties
  • Audit firms
  • Temporary suspension from industry
  • Temporary or permanent revocation of license
  • Cant go to another firm if suspended or license
    revoked
  • Fines of up to 100,000 personal for each
    violation, firm up to 2 m
  • If intentional up to 750,000 personal, firm up
    to 15 m
  • Destroy working papers within 5 years fine and
    up to 10 years.

14
Statute of Limitations
  • Two years after violation found or
  • Five years after violation
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