summary of the investor protection auditor reform and transparency act of 2002 sarbanes oxley act
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Summary of the Investor Protection, Auditor Reform, and Transparency Act of 2002 (Sarbanes-Oxley Act). Public Company Accountability Oversight Board.

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summary of the investor protection auditor reform and transparency act of 2002 sarbanes oxley act

Summary of the Investor Protection, Auditor Reform, and Transparency Act of 2002(Sarbanes-Oxley Act)

public company accountability oversight board
Public Company Accountability Oversight Board
  • Establishes a five-member oversight board with investigative and disciplinary powers over auditors of publicly held companies; board is majority independent (two of five members may be CPAs), funded by publicly held companies, must adopt or establish auditing standards and is overseen by SEC.
  • Board must perform annual inspections of accounting firms that audit 100 or more public companies and at least tri-annual inspections of other public company auditors.
non audit services prohibited
Non-Audit Services Prohibited
  • Auditors of publicly held companies are prohibited from providing the following services to an audit client:
    • Bookkeeping
    • Financial systems
    • Appraisal or valuation
    • Actuarial
    • Internal audit
    • Management or HR functions
    • Broker or dealer, investment adviser or investment banking
    • Legal services or expert services (litigation support)
    • Any other service designated by the Board
non audit services prohibited continued
Non-Audit Services Prohibited (Continued)
  • All other non-audit services, including tax, are also prohibited unless approved by the audit committee and disclosed to investors.
other requirements for auditors
Other requirements for Auditors
  • Auditors must keep supporting documentation (including e-mail) for five years and are subject to a maximum ten-year prison term for failure to do so.
  • The audit partner in charge of the audit must be rotated every five years.
  • A former audit client cannot employ auditors until one year after they last audited the company.
audit committees
Audit Committees
  • Only independent directors may serve on audit committees.
  • Audit committees must include at least one accounting/financial expert who must be identified to the public.
  • Audit committees will hire and fire auditors
  • Auditors must disclose to the audit committee:
    • All critical accounting policies and practices.
    • All alternative treatments that have been discussed with management and the treatment preferred by the auditor.
    • All written material communications with management.
audit committees continued
Audit Committees (Continued)
  • Audit committees must resolve all disputes between management and the auditor.
  • Audit committees will establish procedures to allow for direct communication from company employees (whistleblowers).
  • Company must book all material audit adjustments
corporate officer responsibilities
Corporate Officer Responsibilities
  • Senior executives must certify financial statements (false certification punishable by fines and imprisonment not to exceed $5 million and 20 years respectively)
  • Senior executives must certify to the effectiveness of internal control and the auditor must attest to that certification.
  • Companies must disclose code of ethics adopted for corporate officers.
corporate officer responsibilities1
Corporate Officer Responsibilities
  • It is unlawful for a company employee to mislead the auditor.
  • CEO and CFO must forfeit bonuses and profits on company stock sales when earnings are restated due to securities fraud.
  • Executives prohibited from receiving company loans unavailable to outsiders.
  • Prohibits executives from selling company stock during blackout periods and requires insiders to report all company stock trades within two days.
new protections and penalties
New Protections and Penalties
  • Broadens ability of whistleblowers to sue, prove retaliation and collect damages.
  • Prohibits investment firms from retaliating against analysts who criticize clients of the firm.
  • Creates a new 20-year crime for any "scheme or artifice" to defraud shareholders or for destroying, altering or fabricating records in federal investigations.
new protections and penalties continued
New Protections and Penalties (Continued)
  • Increases CEO, CFO penalties for false statements to SEC or failing to certify financial reports to $5 million fine, 20-year prison term.
  • Raises the maximum penalty for securities fraud to 25 years, for mail fraud to 20 years and for defrauding pension funds to 10 years.
  • Lengthens statute of limitations on securities fraud to five years or two from discovery.
  • Prevents officials facing fraud judgments from using bankruptcy to escape liability.
lastly new sec sanctions
Lastly, New SEC Sanctions
  • SEC may now prohibit individuals from serving as directors or officers of publicly held companies and associates of broker/dealers.