Sarbanes-Oxley Act of 2002 - PowerPoint PPT Presentation

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Sarbanes-Oxley Act of 2002

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  1. Sarbanes-Oxley Act of 2002

  2. Paul Sarbanes • Maryland’s Democratic Senior Senator • Chairman of the Senate Banking, Housing, and Urban Affairs Committee • Pushed for the establishment of an accounting oversight board

  3. Michael Oxley • Congressman, Fourth Ohio District • Chairman of the House Committee on Financial Services • Oxley’s committee was the first to hold hearings on the fraud at Enron and WorldCom

  4. Purpose of the Legislation • To ensure auditor independence • To provide higher levels of accuracy in corporate financial reporting • To promote responsible conduct on the part of corporate officers and directors, auditors, and securities analysts

  5. Public Company Accounting Oversight Board • Appointed and overseen by the SEC • Made up of five, full-time members • Only two of the members can be CPAs • Funded by public companies through mandatory fees • Audit firms must register and pay annual fees

  6. Setting the Standards • The Board will issue/adopt standards set by other groups or organizations • Quality control • Ethics • Independence • Standards “necessary” to protect the public interest

  7. The Accounting Police • The Board is empowered to regularly inspect the operations of accounting firms • Investigate potential violations of securities laws, standards, competency and conduct

  8. The Greater Role of the Audit Committee • The Act requires auditors to be hired and overseen by an audit committee • Members of the audit committee must be independent of the CEO and other corporate executives • The audit committee must approve all services to be performed by the accounting firm

  9. The CEO & CFO Must • Certify that the corporation’s financial reports fairly present the company’s operations and financial condition • Divulge bonuses, other incentive based-bonuses, and profits on stock sales

  10. The CEO & CFO Must Not • Coerce auditors into creating misleading financial statements • Accept loans from the company

  11. The New Role of the Auditor • Lead audit partners must be rotated every five years • A second auditor must provide a thorough second review of every audit report • Cannot offer certain non-audit services to clients • Must maintain audit workpapers for at least five years

  12. Non-Compliance: Ernst & Young • Violated auditor independence rules by working too closely with an audit client • A judge barred E&Y from accepting new SEC-registered audit clients for six months • Pay $1.7 million in disgorgement