Sarbanes-Oxley%20Act%20of%202002

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Sarbanes-Oxley Act of 2002
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Paul Sarbanes

• Marylands Democratic Senior Senator
• Chairman of the Senate Banking, Housing, and
  Urban Affairs Committee
• Pushed for the establishment of an accounting
  oversight board

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Michael Oxley

• Congressman, Fourth Ohio District
• Chairman of the House Committee on Financial
  Services
• Oxleys committee was the first to hold hearings
  on the fraud at Enron and WorldCom

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Purpose of the Legislation

• To ensure auditor independence
• To provide higher levels of accuracy in corporate
  financial reporting
• To promote responsible conduct on the part of
  corporate officers and directors, auditors, and
  securities analysts

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Public Company Accounting Oversight Board

• Appointed and overseen by the SEC
• Made up of five, full-time members
• Only two of the members can be CPAs
• Funded by public companies through mandatory fees
• Audit firms must register and pay annual fees

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Setting the Standards

• The Board will issue/adopt standards set by other
  groups or organizations
• Quality control
• Ethics
• Independence
• Standards necessary to protect the public
  interest

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The Accounting Police

• The Board is empowered to regularly inspect the
  operations of accounting firms
• Investigate potential violations of securities
  laws, standards, competency and conduct

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The Greater Role of the Audit Committee

• The Act requires auditors to be hired and
  overseen by an audit committee
• Members of the audit committee must be
  independent of the CEO and other corporate
  executives
• The audit committee must approve all services to
  be performed by the accounting firm

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The CEO CFO Must

• Certify that the corporations financial reports
  fairly present the companys operations and
  financial condition
• Divulge bonuses, other incentive based-bonuses,
  and profits on stock sales

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The CEO CFO Must Not

• Coerce auditors into creating misleading
  financial statements
• Accept loans from the company

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The New Role of the Auditor

• Lead audit partners must be rotated every five
  years
• A second auditor must provide a thorough second
  review of every audit report
• Cannot offer certain non-audit services to
  clients
• Must maintain audit workpapers for at least five
  years

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Non-Compliance Ernst Young

• Violated auditor independence rules by working
  too closely with an audit client
• A judge barred EY from accepting new
  SEC-registered audit clients for six months
• Pay 1.7 million in disgorgement