A review of Sarbanes-Oxley Act (SOX Act) of 2002

A review of Sarbanes-Oxley Act (SOX Act) of 2002.

Introduction
SarbanesOxley was named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S.
Representative Michael G. Oxley (R-OH). As a result of SOX, top management must
individually certify the accuracy of financial information. In addition, penalties for fraudulent
financial activity are much more severe. Also, SOX increased the oversight role of boards of
directors and the independence of the outside auditors who review the accuracy of corporate
financial statements. The act contains eleven titles, ranging from additional corporate board
responsibilities to criminal penalties, and requires the Securities and Exchange Commission
(SEC) to implement rulings on requirements to comply with the law. Harvey Pitt, the 26th
chairman of the SEC, led the SEC in the adoption of dozens of rules to implement the Sarbanes
Oxley Act. It created a new, quasi-public agency, the Public Company Accounting Oversight
Board, or PCAOB, charged with overseeing, regulating, inspecting, and disciplining accounting
firms in their roles as auditors of public companies. The act also covers issues such as auditor
independence, corporate governance, internal control assessment, and enhanced financial
disclosure. The nonprofit arm of Financial Executives International (FEI), Financial Executives
Research Foundation (FERF), completed extensive research studies to help support the
foundations of the act.
How the SOX Act may affect ethical decision making in todays business environment
Section 406 of the Sarbanes-Oxley Act outlines code of ethics requirements for senior financial
officers. Taken directly from the act, a code of ethics comprises the standards necessary to
promote "honest and ethical conduct; full, fair, accurate, timely and understandable disclosure in
periodic reports;" and "compliance with applicable governmental rules and regulations." Any
changes to an established code of ethics must promptly be disclosed to the public via the Internet
or other electronic means. In this article the companies are required to disclose:

Whether they have a written code of ethics that applies to their principle executive
officer, principal financial officer, principle accounting officer or controller, or persons

performing similar functions.

any waivers of the code of ethics for these individuals; and

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Any changes to the code of ethics.

If the company do not have a code of ethics, they must explain they have not adopted

one.
A company may either file its conduct as an exhibit to the annual report, post the code on
the companys web site, or agree to provide a copy of the code upon request and without
charge.

The criminal penalties for which the act provides.

Criminal penalties for influencing US Agency investigation/proper administration

Section 802(a) of the SOX, 18 U.S.C. 1519 states: Whoever knowingly alters,
destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record,
document, or tangible object with the intent to impede, obstruct, or influence the
investigation or proper administration of any matter within the jurisdiction of any
department or agency of the United States or any case filed under title 11, or in relation to
or contemplation of any such matter or case, shall be fined under this title, imprisoned not
more than 20 years, or both.

Criminal Penalties for CEO/CFO financial statement certification

Section 906 states: Failure of corporate officers to certify financial reports

Criminal Penalties. Whoever certifies any statement as set forth in subsections (a) and (b) of
this section knowing that the periodic report accompanying the statement does not comport with
all the requirements set forth in this section shall be fined not more than $1,000,000 or
imprisoned not more than 10 years, or both; or
Willfully certifies- any statement as set forth in subsections (a) and (b) of this section knowing
that the periodic report accompanying the statement does not comport with all the requirements
set forth in this section shall be fined not more than $5,000,000, or imprisoned not more than 20
years, or both.

Criminal penalties for retaliation against whistleblowers

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Section 1107 of the SOX 18 U.S.C. 1513(e) states: Whoever knowingly, with the intent to
retaliate, takes any action harmful to any person, including interference with the lawful
employment or livelihood of any person, for providing to a law enforcement officer any truthful
information relating to the commission or possible commission of any federal offense, shall be
fined under this title, imprisoned not more than 10 years, or both.

Reference;
1. Wall Street lawyer 2003 (frank Navran and Edward l. Pittman)