Part 1 – What is the Sarbanes-Oxley Act?

The Sarbanes-Oxley Act, also known as Sarbox and SOX, came about in 2002. This is a federal law that was enacted in to revise and set new standards for publically traded companies. In light of large corporate scandals like Enron, WorldCom and Tyco, the Sarbox bill was created to protect shareholders who were losing large amounts of money due to these scandals.

The SOX act has eleven different stipulations that range from board responsibilities to criminal punishments. The Securities and Exchange Commission (SEC) is the overseer of the enforcement of the SOX act.

The Sarbanes-Oxley Act outlines eleven requirements for publically trading companies to abide by with regard to financial reporting processes. These are called titles.

Title I is the Public Company Account Oversight Board (PCAOB) which is board that was developed to oversee accounting companies that provide audits to ensure appropriate reporting.

Title II is the auditor independence requirement. This says that auditors of a company must be external and in no way related to the company being audited.

Title III is the corporate responsibility statute. This mandate says that corporate officers and executives are personally responsible for accurate financial reporting. This means that executives can be personally held liable for irresponsible reporting.

Title IV is the enhanced financial disclosures requirement. This limits and outlines what reporting is required for various financial transactions. This eliminates the ability for companies to hide behind shell companies, stock transactions, off-balance-sheet transactions, etc.

Title V is the analyst conflicts of interest. This makes it mandatory of security analysts to disclose any possible conflicts of interest so that investors can have transparency.

Title VI is the commission resources authority. This gives the SEC authority to oversee the SOX act and allows securities analysts to be barred from practice should they disobey SOX.

Title VII is the studies and reports requirements. This allows the SEC and Comptroller General to conduct studies of various companies and report their findings openly.

Title VIII is to corporate and criminal fraud accountability and title IX is the white collar crime penalty enhancement. Both outline the criminal punishments available should a company break the SOX act.

Title X is the corporate tax returns requirement that forces the CEO to sign off on the tax returns of the company.

Title XI is the corporate fraud accountability that targets fraud and record tampering in a corporation as well as punishment for doing so. 

On Thursday we will take a look at how having a Purchasing Software in place can help you stay compliant.