Sarbanes Oxley Act

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This Project was taken under Mr. Anand Jangid, Risk Analyst with Infosys

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  • Sarbanes Oxley Act

    1. 1. Sarbanes-Oxley Act of 2002 Presenters – Abhinav Goyal PGDM e BIZ 2008-2010
    2. 2. Once upon a time in a great, great land, there was a company called Enron . It did not live happily ever after. This made the people of this great land confused. What is happening? they cried. Tell us, oh great Arthur Anderson! I cannot, was the reply, and the people were stunned. Soon other companies began to not live happily ever after, also, and the people grew ever more confused. They began to suspect that some of the officers of the great land's public corporations were not always completely truthful. Then the people of this land discovered that it was not actually against the law to be untruthful sometimes, and there was a great outcry. Fix this! they beseeched their elected leaders. Pass a law! And so the great leaders of this great, great land did.
    3. 3. What went wrong? <ul><li>Net profit overstatements using a creative variety of fraudulent accounting records </li></ul><ul><ul><li>Revenue recognition - Xerox </li></ul></ul><ul><ul><li>Reserves - AOL </li></ul></ul><ul><ul><li>Understatement of debts - Enron </li></ul></ul>How did they do it? <ul><li>Misleading public disclosures </li></ul><ul><li>Direct personal benefit </li></ul><ul><li>Trading violations </li></ul>Who Were the Transgressors? <ul><li>Corporations </li></ul><ul><li>Investment banks </li></ul><ul><li>Other market participants </li></ul>
    4. 4. The Act <ul><li>US Senator Paul Sarbanes (D-Maryland) & US Congressman Michael Oxley (R-Ohio) </li></ul><ul><li>Signed into law July 30, 2002 </li></ul><ul><li>In response to the Arthur Anderson, Enron and WorldCom debacle, the Sarbanes-Oxley Act seeks to: </li></ul><ul><ul><li>Restore the public confidence </li></ul></ul><ul><ul><li>Assure ethical business practices </li></ul></ul><ul><li>Bottom line: </li></ul><ul><li>Before: “Just Do It!” </li></ul><ul><li>Now: “Do it – Control It – Document it – Prove it!” </li></ul><ul><li>Securities and Exchange Commission (SEC) to implement rulings </li></ul>
    5. 5. Titles of the Act <ul><li>Public Company Accounting Oversight Board (PCAOB) </li></ul><ul><li>Auditor Independence </li></ul><ul><li>Corporate Responsibility </li></ul><ul><li>Enhanced Financial Disclosures </li></ul><ul><li>Analyst Conflicts of Interest </li></ul><ul><li>Commission Resources and Authority </li></ul><ul><li>Studies and Reports </li></ul><ul><li>Corporate and Criminal Fraud Accountability </li></ul><ul><li>White Collar Crime Penalty </li></ul><ul><li>Corporate Tax Returns </li></ul><ul><li>Corporate Fraud and Accountability </li></ul>SOX of 2002: An Act to protect investors by improving the accuracy and reliability of corporate disclosures
    6. 6. SOX: Who will be affected and how? <ul><li>Executives : </li></ul><ul><ul><li>Responsibility for financial reporting and keeping the markets informed </li></ul></ul><ul><ul><li>Certifications: - 302 “Disclosure controls & procedures” - 404 “Internal controls for financial reporting” - 906 “CEO/CFO’s written statement on fairness” </li></ul></ul><ul><ul><li>Implement Code of Ethics and whistleblower procedure </li></ul></ul><ul><li>Supervisory Board: </li></ul><ul><ul><li>Enhanced oversight </li></ul></ul><ul><ul><li>Appointment of a “financial expert” </li></ul></ul><ul><li>Auditors: </li></ul><ul><ul><li>Independence </li></ul></ul><ul><ul><li>Attestation on internal controls </li></ul></ul>
    7. 7. Interesting Facts <ul><li>Sarbanes Oxley Whistleblower Cases </li></ul><ul><li>The Sarbanes-Oxley Act (“SOX”) prohibits retaliation against certain corporate whistleblowers. </li></ul><ul><li>Example – </li></ul><ul><li>Case - Collins v. Beazer Homes / Richards v. Lexmark International, Inc. </li></ul><ul><li>Section 806 </li></ul>
    8. 8. Why implementing SOX is difficult? <ul><li>Multi interpretation statement </li></ul><ul><li>Text book auditor vs. real life IT process auditee </li></ul><ul><li>Never ending control frequency </li></ul><ul><li>Global problem local hell </li></ul><ul><li>A Story of never ending process </li></ul>

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