Sarbanes Oxley: A Brief Overview
SARBOX Introduction:
Often described as the single-most sweeping legislation aimed at public corporations since the great depression of the 1930s, the Sarbanes-Oxley Act of 2002 (SARBOX) is a powerful juggernaut steered toward corporate financial accountability. For without The Sarbanes-Oxley Act, many of the unscrupulous corporate actions that robbed trusting investors of millions (and possibly billions) of dollars, could go both unnoticed and uncontrolled.
Why The Sarbanes-Oxley Act:
Finding its source from the egregious corporate scandals of the late 1990s and early 2000s, SARBOX maintains its presence as a primary gatekeeper for the public’s trust in the companies where they invest their hard-earned wages.
Sarbanes Oxley is necessary law designed to keep public companies honest with their financial reporting. No longer can dishonest corporate executives or fiscal managers load their books with false or misleading financial information. The investing public has once again been imparted the sense of security and integrity they deserve with the passing of The Sarbanes Oxley Act.
SARBOX Basics:
Sometimes referred to as the Public Company Accounting Reform and Investor Protection Act of 2002, SARBOX is geared toward accountability. The act is broken down into 11 sections each with subsections. With regard to compliance, there is no option. ALL publicly-traded corporations MUST COMPLY with the mandates of the act.
Although consisting of 11 sections, the primary sections requiring the greatest level of compliance and delegation of resources are sections 302 and 404.
Section 302 Overview:
Under section 302 of SARBOX, a set of internal guidelines are mandated to be developed and implemented; thus ensuring proper and accurate financial disclosure of all corporate activity. After these internal protocols have been established, the responsible, signing officers must acknowledge their accountability for so doing and in effect creating a powerful benchmark of culpability.
Section 404 Overview:
Often considered the most difficult section for compliance, section 404 mandates corporate management, along with an external auditor, to provide accurate information (in the form of an “internal control report”) regarding the efficacy of the company’s internal auditing and reporting controls.
Due to the enormity of this task for most corporations, section 404 of SARBOX is the most costly and time-consuming portion regarding proper compliance and therefore the root of most contentiousness and disagreement.
Sarbanes-Oxley: A Concluding Statement:
The Sarbanes Oxley Act was passed with an overwhelming majority (334-90 in the House and 99-0 in the Senate) of the United States Congress in July, 2002. The legislation establishes a welcome set of ethical standards and financial accountability for all publicly-traded US (and foreign) corporations doing business in the United States.
The primary goal of the Act is to restore public trust in the American corporate and financial-reporting system thus increasing current and future investment.
SARBOX compliance need not be a burden. If handled correctly and efficiently, the benefits far outweigh the costs.
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