Sarbanes-Oxley Act 2002

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Sarbanes OxleyAct 2002

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IntroductionThe Sarbanes-Oxley Act of 2002, is propounded bythe sponsor Paul Sarbanes and its RepresentativeMichael G. Oxley.Designed by being influenced by scandals such asEnron and WorldCom.Formulate strict rules and regulations against all USpublicly traded companies.Making new laws and Modifying existing laws

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SIGNIFICANT PROVISIONS: TITLE I: PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD101Establishment and administrative provisions. The Board:•Is a nonprofit corporation, not an agency of the U.S. government.•Will have five financially literate members who are prominent individuals of integrity andreputation with a commitment to the interests of investors and the public.•Has authority to set standards related to audit reports and to conduct inspections ofregistered public accounting firms.102Registration with the Board:•Accounting firms auditing public companies must register with the PCAOB.103Auditing, quality control, and independence standards and rules. The Board:•Will establish or adopt rules regarding the conduct of audits and regarding audit firm quality controlstandards.•Will require audit firms to describe the scope of testing of issuers’ internal control structure.104Inspections of registered public accounting firms. The Board will:•Inspect annually registered accounting firms that audit more than 100 issuers.•Inspect at least every three years registered accounting firms that audit fewer than 100 issuers.•Publicly report results of its inspections.105Investigations and disciplinary proceedings. The Board will:•Adopt procedures for disciplining registered accounting firms.•Require registered accounting firms to provide documentation and testimony that the Board deemsnecessary to conduct investigations.•Be able to sanction registered accounting firms for noncooperation with investigations.106Foreign public accounting firms. Foreign accounting firms must comply with the same rules relatedto the PCAOB as domestic accounting firms.107Commission oversight of the Board. The SEC has oversight and enforcement authority over the

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PROVISIONS FOR AUDITING COMMITTEETITLE II: Auditor Independence201Services outside the scope of practice of auditors. There exist a variety of services that registeredaccounting firms may not perform for issuers, e.g., bookkeeping, systems design, appraisalservices, and internal auditing, among others. Tax services may be performed, but only withpreapproval by the audit committee.202Preapproval requirements. All audit and no audit services (with certain exceptions based on sizeand practicality) must be approved by the audit committee of the issuer.203Audit partner rotation. The lead partner and reviewing partner must rotate off the issuerengagement at least every five years.204•Auditor reports to audit committees. Registered accounting firms must report to the auditcommittee issues concerning: Critical accounting policies and practices.•Alternative treatments of financial information within generally accepted accounting principlesthat have been considered by management, and the preferred treatment of the accounting firm.•Significant written communications between the accounting firm and management.205Conforming amendments. This section details minor wording changes between the Sarbanes-Oxley Act and the Securities Act of 1934.206Conflicts of interest. Registered accounting firms may not perform audits for an issuer whoseCEO, CFO, controller, chief accounting officer, or other equivalent position was employed by the

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