Surbanes Oxley

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Surbanes Oxley

  1. 1. •The Act •Key Sections of Sarbanes Oxley •Breaking the Law •Cause of Sarbanes Oxley •Costs of Sarbanes Oxley •Litigation against Sarbanes Oxley •CEO’s and Sarbanes Oxley
  2. 2. 11 Titles 66 sections July 0f 2002 Important Sections to go over 101, 302, 404, 401, 409, 802, 807, 906, 1107, 1103
  3. 3. Purpose Duties Membership Other Important Facts
  4. 4. Who is accountable? CEO & CFO What does their signature certify? Review No untrue statement or omission of material fact Fair representation What do they need to do? Establishment/Maintenance of internal controls Disclosures Loophole? Nope - foreign reincorporation has no effect Deadline – 30 days
  5. 5. Disclosure Amendment Accuracy Off-Balance Sheet Transactions Pro Forma Figures Special Purpose Entities The Study The Report
  6. 6. TABLE IV(B)(1): Issuers Reporting Arrangements in MD&A Off-Balance Sheet Section a Sub-Samples Large Random Estimate Full Sample Issuers Issuers for Population (N=10, (n=200) (n=100) (n=100) 100) Categorized by Type of Arrangement b (%) (%) (%) (%) Variable Interest Entities 7.5 14 1 1.1 Retained Interests 13 25 1 1.2 Guarantees 22.5 39 6 6.3 Equity-linked Derivatives 1 2 0 0c
  7. 7. Oops you missed one Suppose to be reported in MD&A Where is it reported? Notes Why? Information Gathering Result Poor quality Improvement? Yes! Can and should be improved
  8. 8. Transparency Eliminate (or at least Reduce) Accounting-Motivated Structured Transactions Continue Implementation of Objectives Oriented Approach to Standard Setting Improve the Consistency and Relevance of Disclosures Accounting Standards Standards on Accounting for Leases Standards on Accounting for Defined-Benefit Retirement Arrangement Continue Work on Consolidation Policy Continue to Explore the Feasibility of Reporting All Financial Instruments at Fair Value Develop a Disclosure Framework
  9. 9. Guidelines Does it have to go in the 10-Q? Who makes the guidelines? Evaluations & Reporting Who evaluates?
  10. 10. Smaller Companies vs. Large companies How many Key controls are evaluated? Auditor Vs. Company/Issuer one one year now year out Change now out Change Small Companies 262 202 -22.9% Small Companies 359 298 -17.0% Large Companies 669 540 -19.3% Large Companies 992 867 -12.6%
  11. 11. Amendment (Securities and Exchange Act of 1934) Real Time Issuer Disclosures “IN PLAIN ENGLISH!!”
  12. 12. Destruction, alteration, or falsification of records in Federal investigations and bankruptcy Fine, up to 20 years, or both Destruction of corporate audit records Fine, up to 10 years, or both **A firm needs to maintain all audit review work papers for 5 years
  13. 13. Amendment (Ch. 63, title 18 U.S. Code) “Whoever knowingly executes, or attempts to execute, a scheme or artifice shall be fined under this title, or imprisoned not more than 25 years, or both
  14. 14. “White-Collar Crime Penalty Enhancement Act of 2002” Certifying a statement not in compliance with The Commission Act of 1934 (section 13a or 15d) and does not fairly present, in all material respects, the financial condition and results of operations of the issuer Unwillingly – UP to 1M, 10 years, or both Willingly – UP to 5M, 20 years, or both
  15. 15. “Corporate Fraud Accountability Act of 2002” Tampering with a record or otherwise impeding an official proceeding Fine, 20 years, or both
  16. 16. What about Ponzy? No payments Period Extension Who petitions the Freeze? The SEC
  17. 17. What did you do!! Fraud and falsification Charges Kenneth L. Lay Conspiracy, false statements, and securities and bank fraud Jeffrey K. Skilling Conspiracy, money laundering, insider trading and securities fraud
  18. 18. The First year of SOX •Companies with $4 billion or more in revenues are spending on average $35 million a year to comply with SOX •The average cost of compliance of small companies was approximately 2.5% of the firms annual revenues The SEC originally estimated that the cost of compliance would be $91,000
  19. 19. •Cisco Systems: $50 million and 240,000 hours on its first years audit •Yellow Roadway Corp: Paid about $9 million to accountants for audit work, or approximately 3% of annual profits for 2004 •General Electric Co.: spent about $30 million on audit work
  20. 20. •Across 96 Fortune 1,000 companies, respondents expected 2nd year costs to decline from $7.3 million to $4.3 million •Companies with market caps between $75 and $700 million have seen costs drop from approximately $1.5 million to $900,000
  21. 21. 1. Increase in consumer confidence 2. Increase in company efficiency
  22. 22. •Costs •Staying Private •Economic Drawbacks •IPO’s are moving abroad
  23. 23. “It’s a bad law and we’ll get rid of it any way we can” Mallory Factor, chairman of the Free Enterprise Fund
  24. 24. Which of the following statements are true about you? •SOX has significantly increased my workload 75% •Complying with SOX has made my job less satisfying 49% •SOX will be good for my career 29% •SOX has elevated the stature of my job within the company 26% •SOX has made me consider a career outside of finance 16% BusinessWeek, March 13,2006
  25. 25. Mark Kirk of Illinois Tom Feeney of Florida
  26. 26. Sources Sarbanes-Oxley Act of 2002 http://files.findlaw.com/news.findlaw.com/hdocs/docs/gwbush/sarbanesoxley072 302.pdf Report and Recommendations Pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002 http://www.sec.gov/news/studies/soxoffbalancerpt.pdf

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