The document discusses the Sarbanes-Oxley Act (SOX) passed in the United States in response to major corporate accounting scandals. It summarizes key provisions of SOX including those relating to internal controls, financial disclosures, auditor independence and oversight. It then compares SOX to existing regulations and standards in India established by organizations like the Institute of Chartered Accountants of India. While Indian laws already addressed many issues covered by SOX, the document argues that India could benefit from stricter penalties for white collar crimes and more real-time financial disclosures as mandated by SOX.

1. SARBANES-OXLEY ACT
The whole world is created through an evolution. Man evolved and so did the commercial world. Right
from the barter system we evolved into the exchange of money to the present day world trade. In the
era of globalization, the business world has various permutations & combinations, making it a very very
complex commercial world. A small mistake or a small misconduct by any entity not only affects that city
or that country, but it affects every investor who is sitting thousands of kilometers away. And if we turn
the pages of commercial history, not very long back in 1990’s, we have cases like Enron, Tyco and
WorldCom.
All these scandals justified certain loopholes in the business incorporations, such as:
1. Weakness of the Internal Control Mechanisms
2. Non disclosures in financial reports
3. Less Transparent Corporate Governance
And these loopholes created the need for a powerful law.
Unfortunately, any strong law comes only after failure of the system. What we gain is “SARBANES-
OXLEY” and what we lose, Enron the 7th
largest US based Company, Arthur Anderson which was one of
the biggest Accounting firm in the world.
The Sarbanes-Oxley Act, officially titled the “Public Company Accounting Reform and Investor Protection
Act”, is commonly known as SOX, and is considered to be the most significant change to federal
securities laws in the United States. So what is Sarbanes-Oxley, why this name, what’s the mystery
behind it .Well its simple, Sarbanes-Oxley are the names of 2 great gentlemen who are the brainchild of
this Act, Senator Paul Sarbanes and Representative Michael Oxley.
The Sarbanes-Oxley Act in United States is designed to protect investors by improving the accuracy and
reliability of corporate disclosures, corporate responsibility, auditor independence, and enhanced
financial disclosure. Basically the act requires full disclosure on just about everything.
SOX is applicable to incorporations listed in US stock exchanges. Now, questions may arise in our minds
that why we need to know about SOX. The answer to this is in the first line of our ICAI Anthem “: ...”
means, a person who is awake in those that sleep.
Our esteemed Institute was very well aware of the contingencies while performing an audit and had
already made provisions to clarify it. This is the major reason that SOX was not required for the Indian
Companies.

2.  At Federal level, United States does not have a company law, which would provide for auditing
issues, and this is sought to be covered under the Sarbanes Bill. In our country, the situation is
far different. We have Companies Act 1956, SEBI Act, 1992.
 In United States, AICPA, the accounting body at the Federal level is a voluntary association, not
carrying any statutory mandate. Well, the position in India is again different. The Chartered
Accountants Act, 1949 is administered by our very own Institute. The accounting profession in
India is thus, in no way self regulated. Hence, we have an ethical code of conduct.
The 66-pages Sarbanes-Oxley Act contains 11 TITLES and 69 Sections. And here I will be sharing with you
all the comparative analysis between Sarbanes-Oxley and the Indian Corporate Laws.
Let us start the journey to learn something new…
I. The act specifies the duties & powers of Public Company Accounting Oversight Board
• However, In India, all these functions have already been entrusted upon the ICAI.
II. Towards the preservation of Audit Working Papers
• Under this Act, the American auditors are required to keep working papers for 7 years.
• Under the Chartered Accountants Regulation, we were already required to maintain these
working papers for a period of 8 years.
III. On the cards of Auditing Quality Control and Financial Standards
• We have our beloved 31 Accounting Standards instituted by ICAI and mandated by the
Companies Act.
• But in United States, these standards were originally proposed by AICPA without any
statutory backing. It is only after the institution of SOX that it had a statutory backing by
the board. As the saying goes, “Rules by itself have no value without a strong authority”.
• Besides Institute has already decided to converge its national standards with IFRS.
IV. Inspection
• In SOX, the Board has the power to periodically inspect the public accounting firms.
• This is similar to the provision of peer review mechanism in India which was introduced
well before Sarbanes-Oxley.
V. Next, Extending Jurisdiction Over Foreign Accounting Firms
• The Sarbanes Bill provides that foreign public accounting firms shall also be subject to
same set of standards as prescribed in respect of US firms.

3. • The Chartered Accountants regulation requested every firm to register itself with ICAI.
Only the registered members are allowed to perform the attestation functions. For e.g.
E&Y was not allowed to perform attestation functions in India, as a result of which it had
to register an associate firm named S.R.Batliboi & Associates.
VI. In the area of Audit Partner Rotation
• SOX provides for rotation of lead audit partner every 5 years, thus ensuring
independence of the auditor.
• The companies Bill 2012 enables the provision of rotation of audit partners. Members of
a company may resolve to provide that in the audit firm appointed by it the auditing
partner and his team shall be rotated at such intervals as may be resolved by members.
VII. Disclosure in periodic reports
• Under SOX, all material correcting adjustments needs to be disclosed, that may have a
material current or future impact on financial conditions.
• However in India, the new Schedule VI requires to disclose such items in Notes to
Accounts & Directors Report.
VIII. Now, Authority of the Commission to Prohibit Persons from Serving as Officers or Directors.
• If such person has violated certain provision of the securities law of United States.
• The Companies Act prescribes the disqualification for becoming director in a company.
The motive is to restrain the fraudulent persons from driving companies.
We all will agree that our laws have as elaborate corporate disclosures and audit checkpoints as in the
laws of United States.
Still Indian laws are known as spider webs through which big flies pass and the little ones get caught.
The Indian corporate world is erupting with major scams every now & then. And I am sure; our intellect
mind asks WHY SO?
Few years back, when an Indian used to go to USA, the people over there used to say, “Oh you are from
the land of Taj Mahal…But now when we go, We here, Oh you are from the land of Satyam….”.
Certain reasons which I conclude for this scenario after reading the Sarbanes-Oxley Act and which we
need in our law are:
IX. White Collar Crime Penalty Enhancements

4. • Maximum penalty for mail and wire fraud increased from 5 to 10 years.
X. Real time Disclosures
• Issuers must disclose information on material changes in the financial condition or
operations of the issuer on a rapid and current basis & not on historical basis.
XI. Penal Provisions for auditors.
• The strong penal provisions for auditors which are present in Sarbanes Bill includes
revocation of the firm or the person and also includes heavy civil monetary penalty
ranging from $1,00,000 to $20,00,000.
• In my opinion, in our country too we have Penal Provisions, but a bit lenient. We need
some strict penalties.
So friends, “JUSTICE SHOULD NOT ONLY BE DONE, BUT SHOULD MANIFESTLY AND UNDOUBTEDLY BE
SEEN TO BE DONE.”
However, with the coming of SOX, India also took new corporate governance norms under Clause 49 of
Listing Agreement. Five broad themes predominate.
 The independence criteria for directors have been clarified.
 The roles and responsibilities of the board have been enhanced.
 The quality and quantity of disclosures have improved.
 The roles and responsibilities of the audit committee have been consolidated,
 And the accountability of top management—specifically the CEO and CFO—has been
enhanced.
Good Corporate Governance is simply Good Business. And this is a move towards good business.
In fact, the Sarbanes Bill is a move towards the Indian position as it exists today. Additional provisions in
the Bill parallel the moves that have already been made by ICAI through its various representations to
the government of India.
Our institute has always been lending a strong hand towards nation building and we the generation next
of the profession should instill in ourselves the attitude of looking for a week rather than a weekend and
only then can we make a strong growing nation.
- ROHAN LOYA