Sox presentation By DSA

Sarbanes-Oxley Act “SOX”

'Public Company Accounting Reform and Investor Protection Act'

Presented By:

Daniyal Shahid Arain

111122

WABILITYKnowledge & Experience

Agenda

SOX

I. BackgroundII. ReasonsIII. Major SectionsIV. Implementation CostV. Benefits to InvestorVI. Benefits to CompanyVII. PenaltiesVIII.Criticism


Background

Background

The Sarbanes-Oxley Act of 2002:

Created by US Senator Paul Sarbanes (D-Maryland) 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.


SOX Basics

Accounting Scandals

Public Markets Decline

Congress Respond

Sarbanes Oxley Act

Enron, Worldcom, Tyco

Public Call to Restore Investor ConfidenceAct Passed

Public Markets Decline Significantly

Sox Basics


SOX Basics

Law

Happens


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.

Sarbanes-Oxley: The Act


More SOX

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, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation.

Sarbanes-Oxley: The Act


Questions

SOX- Act Section

Section 302 Section 404 Section 409

Key Questions for Executives Responsible for the Compliance

Who in the organization is responsible for ensuring the integrity and always-on status of finance and accounting systems?

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?


SOX Costs

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 ExecutivesSurvey’s final results:

$291,000 per Small Company $4.36 million per Large Company

Sarbanes-Oxley: Average Cost Of Implementation


SOX 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.

Benefits to Investors


SOX 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

Benefits to Companies


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

Penalties


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

Business

Sox presentation By DSA