The Sarbanes-Oxley Act (SOX) was passed in 2002 in response to major corporate accounting scandals to improve financial disclosure and transparency for public companies. Major sections of SOX include requirements for CEOs and CFOs to certify financial reports, for companies to establish internal controls on financial reporting, and to promptly disclose material changes. While SOX increased compliance costs for companies, it also aimed to restore investor confidence by improving accuracy of financial reporting and imposing penalties for violations. However, some critics argue that SOX places unnecessary regulatory burdens on companies.

1. Sarbanes-Oxley Act
“SOX”
'Public Company Accounting Reform and Investor
Protection Act'
Presented By:
Daniyal Shahid Arain
111122

2. Agenda
SOX
I. Background
II. Reasons
III. Major Sections
IV. Implementation Cost
V. Benefits to Investor
VI. Benefits to Company
VII. Penalties
VIII.Criticism
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3. Background
Background
The Sarbanes-Oxley Act of 2002:
 Created by US Senator Paul Sarbanes (DMaryland) and US Congressman Michael Oxley
(R-Ohio) Signed into law July 30, 2002

Has usher d in changes to corporate governance
that rank among the most sweeping in history.

Developed in response to recent corporate
accounting scandals.

Aimed at improving the transparency and
accuracy of financial accounting of publicly
traded companies.
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4. SOX Basics
Sox Basics
Enron, Worldcom, Tyco
Accounting
Scandals
Public
Markets
Decline
Congress
Respond
Sarbanes
Oxley Act
Public Markets Decline
Significantly
Public Call to Restore
Investor Confidence
Act Passed
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5. SOX Basics
Law
Happens
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6. The ACT
Sarbanes-Oxley: The Act
Section 302 -CEOs and CFOs to sign off on the validity and
accuracy of their companies’ financial numbers
and to certify the controls and procedures behind
their financial reports.
Section 404 -Organizations must ensure that the audit process
behind their financial reporting is not only
comprehensive and accurate, but that they can
also meet strict quarterly timeframes for reporting
on an ongoing basis.
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7. More SOX
Sarbanes-Oxley: The Act
Section 409 -Issuers are required to disclose to the public, on
an urgent basis, information on material
changes in their financial condition or
operations.
Section 802 -Imposes penalties of fines and/or up to 20 years
imprisonment for
altering, destroying, mutilating, concealing, fals
ifying records, documents or tangible objects
with the intent to obstruct, impede or influence
a legal investigation.
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8. Questions
SOX- Act
Section
Key Questions
for Executives
Responsible
for the
Compliance
Section 302
Who in the
organization is
responsible for
ensuring the
integrity and
always-on status
of finance and
accounting
systems?
Section 404
Section 409
Does the internal
controls
framework include
business continuity
planning and
disaster recovery
considerations?
How will
potential
“material
changes” be
monitored when
the systems
conducting the
monitoring go
offline?
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9. SOX Costs
Sarbanes-Oxley: Average Cost Of
Implementation
The Government estimates:
$125,000 per Company (Small)
$391,000 per Company (Large)
CFOs estimates:
$225,000 (Small Company)
$3.14 million (Large Company)
The Trade Group Financial Executives
Survey’s final results:
$291,000 per Small Company
$4.36 million per Large Company
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10. SOX Benefits to Investors
Benefits to Investors

Companies have to reveal poor
financial reporting practices that
should be stopped.

More trust in the financial
statements of any company before
deciding on any investments.
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11. SOX Benefits to Companies
Benefits to Companies
 Benefits from consolidated
data store
 Benefits from ability to find
data and create reports –
business intelligence
 Side benefit: discovery of
internal fraud and theft
through tighter controls
 Result: positive shareholder
value
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12. Penalties
Penalties
Action
Punishment
Reference
“Knowingly” altering, destroying, or
falsifying documents in an effort to impede,
obstruct, or influence an investigation
Fines up to $15 million
and/or
Imprisonment up to 20 years
Title VIII,
Sec. 802
Securities Fraud
Fines and/or imprisonment up to 25
years
Title VIII,
Sec. 807
Mail and Wire Fraud
Imprisonment up to 20 years
Title IX,
Sec. 903
“Willfully” certifying financial reports that do
not meet regulatory requirements
Fines up to $5 million
and/or
Imprisonment up to 20 years
Title IX,
Sec. 906
Violating SEC regulations
May be ineligible to hold a director or
officer level position at any publicly
traded company
Title XI,
Sec. 1105
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13. SOX-Criticism
•
•
Many Credible Personalities have contended that SOX was an
unnecessary and costly government intrusion into corporate
management that places U.S. corporations at a competitive
disadvantage with foreign firms, driving businesses out of the
United States.
These regulations are damaging American capital markets by
providing an incentive for small US firms and foreign firms to
deregister from US stock exchanges
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