Sarbanes-Oxley

Impact of Sarbanes-Oxley Act 2002

Sarbanes Oxley Act 2002 was enacted by the U .S . Government jointly sponsored by Democratic and Republican parties named after their senators Sarbanes and Oxley respectively echoing the sentiments of all stakeholders in the aftermath of big corporate frauds of Enron , Global Crossing and World com to name a few . As the corporate frauds were perpetrated with the connivance of auditors of the public limited companies , the act called SOX for short , has come down heavily up on the Auditors and Directors . This is aimed at briefly

outlining of how SOX has changed corporate governance affecting auditors by changing the working of their firms , their audit practice and impacting their audit clients of publicly listed companies in the U .S . both U .S and non-U .S having their debt or equity securities registered with SEC under Securities Exchange Act of 1934 . SOX establishes new provisions and changes existing law considerably . The enactment provides for an enhanced audit committee responsibility and auditor oversight , prior approval for non-audit services by the auditor , and disclosure of non-audit services of the auditor

CEOs and CFOs have to certify the accuracy of their companies ' annual and quarterly reports without any misleading statements besides assuming responsibility for properly evaluated internal controls . A ban has been imposed on directors and executives to avail new personal loans from their companies except certain regular consumer loans

The Audit Committee

Section 301 of SOX prohibits listing of security of any company with SEC that does not have an audit committee complying with the provisions therein . The audit committee members should be independent . The director who is the audit committee member is considered independent only if he has not received any direct or indirect compensation from the company or its subsidiaries other than as a director . He ca not also act as an affiliated person which means acting directly or indirectly through intermediaries . A safe harbor not being an executive officer of the company or a shareholder owning 10 or more shares with voting rights is not considered as controlling the company . This audit committee is responsible for hiring company 's independent auditor and fixing their remuneration . This committee should oversee the auditor 's work involving preparation or issue of audit reports and related works and also sorting out differences between the management and the auditor in respect of financial reporting . If the audit committee has any financial expert who is independent as stipulated above , his /her name must be disclosed by the company . If there is no financial expert in the audit committee reason must be furnished by the committee . The financial expert must have the following attributes

An understanding of GAAP and financial statements . The ability to assess the general application of such principles in the accounting for estimates , accruals , and reserves . Experience preparing , auditing analyzing , or evaluating financial statements that present a complexity of accounting issues that is generally comparable in breadth and level to the complexity of issues that the company...