Sarbanes-Oxley Act 2002

A U.S. legislative act passed in July 2002. Named for two U.S. senators, the Sarbanes-Oxley Act was designed to shore up investor confidence and to reform aspects of *corporate governance and the regulation of listed corporations. Massive frauds and accounting scandals at *Enron and *WorldCom, and the collapse of the *Big Five accounting firm *Arthur Andersen had seriously undermined public confidence in corporate governance by the middle of 2002. The Sarbanes-Oxley Act has been described as "the most sweeping law on securities regulation and corporate governance since the 1930s" (McElveen, 2002, 40). It is complex and wide-ranging: Among other things, it requires * Chief Executive Officers and * Chief Financial Officers to certify quarterly and annual financial reports. This generated significant media attention in late 2002, when it resulted in hundreds of senior executives swearing in front of notaries that "to the best of my knowledge" their latest financial statements contained neither an "untrue statement" nor omitted a "material fact." The Act also mandated the creation of a *Public Company Accounting Oversight Board, to enhance regulation and supervision of the external auditing process. Another area of particular interest to auditors was a strengthening of the role and responsibilities of *audit committees. The Act’s provisions cover (i) the independence of audit committee members, (ii) the duties of the audit committees in approving *management advisory services (MAS) provided by external auditors, and (iii) the responsibilities of audit committees for dealing with *whistle-blowing. It also restricted certain MAS provided by external auditors. The Sarbanes-Oxley Act set down principles in the above areas, leaving detailed implementation to organizations like the * Securities and Exchange Commission (SEC) and the New York Stock Exchange. For example, in 2003 the SEC issued rules and deadlines for compliance with Section 404 of the Sarbanes-Oxley Act, which requires management to file an internal control report with its annual report. The ramifications of the Sarbanes-Oxley Act have an international dimension, affecting non-U. S. corporations with secondary listings in the United States, as well as significant overseas subsidiaries of U.S. corporations. Further reading: McElveen (2002); Roth and Espersen (2003); Sarbanes-Oxley Act (2002) Sec Web link: www.sec.gov/spotlight/sarbanes-oxky.htm IIA corporate governance guidance Web link: www.theiia.org/ecm/iiaglance. cfm ?doc_id-4061