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The Sarbanes-Oxley Act (the Act) was signed into law on July 30, 2002. The Act closely resembled the Senate bill with modifications from the House bill-both addressing corporate auditing, reporting and accountability for public companies. The Act establishes additional responsibilities and disclosures for management, new rules governing external auditors, and significantly increases the penalties for securities laws violations. Below is an overview of the principle elements of the new Act.
Overview of the Act
Below is an overview of the principle changes encompassed by the Act, presented in the following sections:
* Board and corporate officer requirements;
* Consequences for issuers;
* Audit committee requirements; and
* Accounting firm requirements.
Boards of Directors and Corporate Officers. The Act imposes the following requirements on boards of directors and corporate officers:
* The Act requires boards of directors to establish an audit committee or to take on the responsibilities of one itself.
* Certify Financial Reports. Under the Act, the CEO and CFO must certify that periodic financial statements filed with the SEC are materially correct. In addition, the certification will cover responsibility for evaluating and maintaining internal controls and reporting conclusions about the effectiveness of internal controls.
* Disclosure to the External Auditor and the Audit Committee. The CEO and CFO are required to certify that they have disclosed to the auditor and audit committee all significant deficiencies in the design or operation of internal controls, whether or not material, that involved management or other employees who have a significant role in the internal control process.
* A separate criminal provision makes it a criminal felony punishable for up to ten years if the certifications are not performed as required by the Act. A willful violation is punishable by a fine up to $5 million and/or imprisonment of up to 20 years.
* The Act prohibits any officer or director from fraudulently influencing, coercing, manipulating, or misleading any accountant engaged in preparing an audit report with the intent to render the audit report misleading.
* CEOs and CFOs must forfeit bonuses, incentivebased compensation, and profits on stock sales if the issuer is required to issue a restatement due to misconduct.
* The Act gives the SEC authority to bring administrative proceedings to bar persons who...