The Sarbanes-Oxley Act of 2002 had its origins in a bill “enacted by Congress in the wake of corporate and accounting scandals that led to bankruptcies, severe stock losses, and a loss of confidence in the Stock Market”of the ordinary investor.(Legal Dictionary, Para #1). President George W. Bush signed the bill and passed Sarbanes-Oxley bill into law in July 2002. The Act names itself after Paul Sarbanes, a democrat Senator from Maryland and Michael G. Oxley who, a conservative senator from Ohio, shared primary responsibility with Sarbanes, for the bill. (Bainbridge, 3)
SOX: Disclosure of Information
Sarbanes-Oxley (referred to as SOX hereinafter) dictated a new corporate policy vide its clause SOX § 302which provides that when an entity files a periodical or annual report, it must be done so under the certification of the CEO and CFO, stating that they have examined the figures and certify them as correct to the best of their knowledge. Further, § 302 also specifies that the CEO and the CFO are required to submit certificates in writing stating in essence that all internal accounting measures have been provided to the external auditors, no data or information which may hamper conducting an accurate audit has been kept away from them. Further, both of them are required to identify any deficiencies in the organization and also, in the process of internal controls. Material weakness, if any, need to be checked too. The objective is to identify any such deficiencies or weaknesses, from their date of certification until the current date. It is also mandatory for a report to be submitted detailing what steps, have been taken for rectification of the unsavory conditions.
In addition to 302, § 906 lays down the rule that both the CFO and CEO have to certify in writing, along with every statement submitted to the Sect hat the “periodic report fully complies withthe“relevant statutes.”It is also necessary to certify that the “information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer.” (Bainbridge,78).
Changes in the Accounts & Audit Structure
As per SOX, § 101, made PCOAB as a sort of non-profit organization in charge and acting as a regulating body over the auditing of the public companies. It is funded by a special tax called “account support tax” payable by the audited company, which varies with the size of the Public Company and “in proportion to the US equity base”. There are rules in writing covering the qualifications, character and integrity for the five board members. Their duties are to develop the public company registration and accounting systems. All external auditors have to submit their reports to the PCOAB, which will check and forward the same to the SEC, with a forwarding letter.
Punishment for non-compliance
Under penalties, there are two instances of violation of § 906-(1) willful or (2) non-willful. Non-willful violation carries a penalty of a fine not to exceed $1,000,000 or imprisonment for a period of not less than ten years or both. For willful violation, the maximum penalty increases to $5,000,000 and the imprisonment period to twenty years.
Conclusion and the effect of SOX on industries
Since SOX, no such case of public fraud has become known, and it is presumed that the big guns, which would have tried their own racketeering techniques have been discouraged by the fate of Enron. However, in all fairness, not all big organization top management officers are white-collar criminals. Secondly, smaller organizations are facing major financial problems because of SOX. This is because to go public, a company needs to bear much more auditing expenses today than it had to do before SOX. Not all companies can afford this. Let us hope that the future will see modifications to SOX so that genuine American small organizations are going to be spared the unfair penalization they are undergoing currently. Let us forget the David and Goliath story because these 'David's are incapable of even running away from the big corporate Goliaths who want to take them over, let alone slaying them.
REFERENCES
(1).Bainbridge, Stephen M.Complete Guide to Sarbanes-Oxley: Understanding How Sarbanes- Oxley Affects Your Business.Cincinnati,F+W Media, Inc., 2007. Print
(2). "Sarbanes-Oxley Act of 2002." West's Encyclopedia of American Law, edition 2. 2008. The Gale Group. Web. < Retrieved on17 Jun. 2014
http://legal-dictionary.thefreedictionary.com/Sarbanes-Oxley+Act+of+2002>
