Sarbanes Oxley, also known as SOX or SarbOx, an act that came into force in July 2002, is considered as one of the most important changes in United States securities laws. Approved by the U.S. House of Representatives and the Senate, the SOX brought major modifications to the ruling of corporate administration and financial practice. Passed to appraise all legislative audit requirements, the SarbOx offers extra powers and duties to the U. S. Securities and Exchange Commission.
Sarbanes Oxley is named for Senator Paul Sarbanes and Representative Michael Oxley, who were the key architects of this law. It covers issues like auditor independence, corporate responsibility and sets up new or improved principles for all U.S. public company boards and accounting firms. SOX is arranged into eleven 'Titles', including issues that range from corporate board responsibilities to criminal penalties. As far as compliance is concerned, the imperative sections among the eleven include 302, 401, 404, 409, 802 and 906.
Section 302 is listed under Title III of SOX, the corporate responsibility for financial reports. This section makes it essential for a set of internal actions to be planned to guarantee exact financial disclosure. The CEO or CFO is obliged to certify that they are in charge for establishing and maintaining internal controls.
The 401 section under Title IV of SOX (enhanced financial disclosures) is a part of 'Disclosures in Periodic Reports'. This states that the financial statements published by managements are required to be accurate and presented in a way that does not involve any incorrect statement. All material off-balance sheet liabilities, obligations or transactions are also included in these statements.
Section 404 (under Title IV) refers to 'Management Assessment of Internal Controls'. Issuers are required to produce an annual report regarding the scope and sufficiency of the internal control structure and procedures for financial reporting.
Under the section 409 which pertains to 'Real Time Issuer Disclosures', the business managements are required to disclose to the public, on urgent basis, information concerning material changes in their financial state or operations. Another point is that these disclosures are easy to understand. Qualitative information of graphic presentations is a suitable option.
Section 802, 'criminal penalties for altering documents', impose severe penalties and/or up to 20 years imprisonment for changing, destructing, falsifying documents with the objective to block or influence a legal inquiry. Section 906, or "906 Certification", needs that all periodic reports that contain financial statements filed with the SEC (the Security and Exchange Commission) are accompanied by a written declaration of the CEO and the CFO of the company.
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