Sarbanes Oxley Act & Key Provisions

What is the Sarbanes Oxley Act ?

Result of numerous financial scandals, Congress passed the Public Company Accounting Reform and Investor Protection Act of 2002. It provides the regulation of auditors and the types of services they provide to clients, increases accountability of corp execs, addresses conflicts of interest for security analysts, and ensures stiff criminal penalties for violators

What are the 8 Key Provisions of the Act?

1. Oversight Board
2. Corporate Executive Accountability
3. Non-Audit Services
4. Retention of Working Papers
5. Auditor Rotation
6. Conflicts of Interest
7. Hiring of auditor
8. Internal Control

Oversight Board

five member board that has the authority to establish audit standards

Corporate Executive Accountability

Executives must personally verify all financial statements and disclosures and be subject to any penalty of misstatement

Non-Audit Services

stronger independence rules for auditors, only allowed to audit nothing else

Retention of Working Papers

Auditors must keep all prior review papers for at least 7 years

Auditor Rotation

Lead audit partners must rotate every 5 years

Conflicts of interest

Auditors cannot audit for firms whose execs previously worked for that audit firm

Hiring of Auditor

Audit firms board of directors must hire auditors, not management

Internal Control

Document and asses all internal control processes that could affect financial reporting