Pros of Sarbanes Oxley Act of 2002
1) Protection of whistleblowers
* Section 806 attempts to encourage and protect whistleblowers by providing for anonymous whistleblowing, establishing criminal penalties for retaliation against whistle blowing, and clearly defining whistleblowing channels.
* The rule states that a company cannot “discharge, demote, suspend, threaten, harass, or in any manner discriminate” against a whistleblower.
* Any retaliation against a whistleblower can result in significant fines and/or a prison sentence of up to ten years and the whistleblower can bring a civil suit against the company.
* This section of the act not only covers current ...view middle of the document...
* Cooling off period- prohibits an accounting firm from auditing an issuer’s financial statements if certain members of the issuer’s management had been members of the audit engagement team within the one-year period preceding the commencement of audit procedures
* Communications with audit committees- requires the auditor to report certain matters to the issuer’s audit committee, including critical accounting policies of the issuer. These critical accounting policies include discussion of the reason why critical accounting estimates or accounting policies are or are not considered critical and how current and anticipated future events impact those determinations.
* Proxy disclosures- revises the categories of disclosure currently required in proxy statements of fees billed by the auditor for audit and non-audit services and requires disclosures about the audit committee’s pre-approval process.
* Partner compensation-provides that independence is impaired if and audit partner received compensation based on selling engagements to the audit client for services other than audit, review, and attest services.
3) Corporate Responsibility
* The final rule implementing Seton 302 was issued by the SEC in August 2002. This rule applies to a company that files periodic reports under section 13 or 15 of the Exchange Act. It requires that a company’s CEO and CFO each certify quarterly and annually that:
* He or she reviewed the report being filed
* Based on his/her knowledge, the report does not contain any untrue statements or omit and material facts necessary to make the statements misleading in light of the circumstances in which they were made.
* Based on his/her knowledge, the financial statements and other financial information fairly present, in all material aspects, the financial position, results of operations and cash flows.
* He/she is responsible for and has designed, established and maintained Disclosure Controls and Procedures, as well as evaluated and reported on the effectiveness of those controls and procedures within 90 days of the report filing date.
* All deficiencies and material weaknesses in internal controls have been disclosed to Audit Committees and auditors, as well as any fraud involving anyone with a significant role in internal controls.
* Significant changes in internal controls that could significantly affect internal controls subsequent to the most recent evaluation have been disclosed in the report, including corrective actions with regard to significant deficiencies and material weaknesses.
* Section 303 states that is unlawful for any officer or director of an issuer to take any action to fraudulently influence, coerce, manipulate, or mislead and independent public or certified accountant engaged in the performance of an audit of the financial statements.
* Section 304 states that if an issuer is required to prepare an accounting...