What is the Sarbanes-Oxley Act?
As a result of the slimy accounting practices and the greed of corporate officers (remember Enron and WorldCom?) the United States Congress passed the Sarbanes-Oxley Act of 2002, otherwise known simply as, “SOX”.
The Sarbanes-Oxley Act, which is composed of eleven sections, was intended to restore public confidence in the reporting and financials of large, publicly traded corporations. The 6 main objectives of the Sarbanes-Oxley Act are as follows:
1) to ensure that auditors remain independent;
2) corporations and auditors are accountable to the public for the numbers they publish;
3) an independent body governs financial reporting processes;
4) sufficient measures are in place to deter fraudulent activity;
5) financial activities are transparent enough to allow fraud detection to occur;
6) and if fraud is detected, someone is held responsible.
The 11 Sections of Sarbanes-Oxley are summarized as follows:
Title I – Public Company Accounting Oversight Board
Establishes the Public Company Accounting Oversight Board. As its name implies, the oversight of auditing firms was shifted from self-regulation to PCAOB oversight. Firms that prepare or issue audit reports for publicly traded companies must register with the PCAOB and are subject to inspection. There are currently over 1,800 auditing firms registered. The PCAOB also sets auditing standards, and investigates and disciplines firms not in compliance with the SOX Act.
Title II – Auditor Independence
Serves to limit potential conflicts of interests for auditing firms. For example, it prohibits auditors from performing much more lucrative consulting services for the companies they audit. It also includes requirements for new auditors and audit partner rotations.
Title III – Corporate Responsibility
Focuses on corporate responsibility for a company’s financial reports, and decrees that a company’s audit committee be independent of and oversee the work of its accounting firm. It further requires that corporate officers attest to the integrity of the company’s financial reports. The section also prohibits insider trading during pension fund blackout periods Sarbanes-Oxley
Title IV – Enhanced Financial Disclosures
Regulates many of the shady accounting practices that led to the downfall of companies like Enron, Adelphia, and WorldCom, such as off-balance sheet transactions, pro forma figures, and personal loans to executives. Section 404 of Title IV is often cited as the most significant aspect of The SOX Act, and as the most costly
provision to implement. Section 404 mandates that auditors submit an annual management report that gauges the efficacy of a company’s internal controls, as well as a second report from management and auditors that assesses internal controls over financial reporting.
Title V – Analyst Conflicts of Interest
Outlines the disclosure requirements for securities analysts, who may have conflicts of interest that preclude them from objectively making recommendations to their clients and to the public.
Title VI – Commission Resources and Authority
Gives the SEC the authority to censure stock brokers and advisors or prevent them from engaging in their professions. It also authorizes the courts to restrict the ability of brokers to offer penny stocks.
Title VII – Studies and Reports
Orders the Government Accountability Office to study the consolidation of public accounting firms and the impact these mergers have on the ability of firms to conduct impartial audits, as well as to provide solutions to problems that may emerge in its findings. It also provides for the study of credit rating agencies and investment banks, as well as for the study of securities professionals (including accountants and investment bankers) who have violated Federal securities laws.
Title VIII – Corporate and Criminal Fraud Accountability
Addresses criminal penalties for specific acts of corporate fraud – including destruction, alteration, or falsification of corporate records, and defrauding shareholders – and reviews the Federal sentencing guidelines for obstruction of justice and extensive criminal fraud. It also includes whistleblower protections for employees of publicly traded companies.
Title IX – White Collar Crime Penalty Enhancements
Includes enhanced sentencing guidelines for those that engage in corporate malfeasance and mandates that failure to certify corporate financial reports is a crime. Gives the SEC the authority to seek court freeze of extraordinary payments to directors, partners and other employees.
Title X – Corporate Tax Returns
Dictates that the CEO of a company must sign the company’s Federal income tax return.
About Marvin Rowe:
Marvin Rowe has almost two decades of hands-on investment banking experience. The diversity of Marvin Rowe’s investment banking background sets him apart as a listing consultant. Marvin Rowe has extensive knowledge of the process of taking companies public on the OTCBB, Pink Sheets, and Frankfurt Stock Exchange (both EU and non-EU companies). Marvin Rowe also has experience with private placements, PIPEs and other venture capital financings, bridge loans and other debt and equity investments, blue-sky filings, corporate formation, structuring and restructuring, securities industry rules, regulations and compliance, trading, market making, SEC and FINRA compliance, real estate development, and a comprehensive understanding of legal issues important to public companies. As a result of his more than 18 years in the investment banking arena, Marvin Rowe has connections with an array of funding sources in the US and Europe. Marvin Rowe leverages these relationships to introduce qualified clients to sources of capital. has connections with an array of funding sources in the US and Europe. Marvin Rowe leverages these relationships to introduce qualified clients to sources of capital. Marvin Rowe works with a highly experienced team of attorneys, banks, lead brokers, and transfer agents who together facilitate listings on the Frankfurt Stock Exchange using up-to-the-minute methods.
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