What is SOX (Sarbanes Oxley-Act)?

The Sarbanes Oxley-Act is a set of complex regulations that is considered to be one of the most important business reform acts since 1934. The Act combines bills that were drafted by Senator Paul Sarbanes and Congressman Michael Oxley designed to enforce corporate accountability and responsibility. Congress quickly enacted the bill to restore confidence in corporate America, where a plunging stock market, increased corporate fraud, and numerous accounting scandals–not to mention record breaking bankruptcies– have had a negative impact on the economy. The Act has granted the SEC increased regulatory control, lengthened the statute of limitations and imposed greater criminal and compensatory punishment on executives and companies that do not comply.

Compliance required areas
It makes senior management and CFOs directly accountable for the accuracy and integrity of financial reporting. It will also impact virtually all employees that will have to be involved in developing and deploying compliance programs. Because it affects the integrity of financial reporting, the CIO and information technology personnel are indirectly impacted as well since data capturing, storage, retention and recording will be affected. In addition, Sarbanes-Oxley will impact a host of other personnel in virtually every functional area of the enterprise.

Enforcement by the Public Company Accounting Oversight Board
The Public Company Accounting Oversight Board (PCAOB), a private entity subject to SEC regulation and oversight, is responsible for overseeing the auditing of public companies and establishing standards relating to the preparation of audit reports. Every firm that audits a public company must be registered with the PCAOB.

Penalties for non-compliance
Effective upon enactment, the Act creates several new crimes and new penalties for securities violations, including:
• If CEO or CFO of any public company knowingly certifies any periodic financial report that is not in compliance with the Securities & Exchange Act of 1934, maximum penalties include a fine of up to $5 million and/or up to 20 years imprisonment
• Destroying, altering or falsifying records with the intent to impede or influence any federal investigation or bankruptcy proceeding is punishable by a fine and a prison sentence of up to 20 years. In addition, knowing and willful failure by an accountant to maintain all audit or work papers for five years after the end of the fiscal period in which the audit or review was conducted is punishable by a fine and a prison sentence of up to 10 years
• Knowingly executing a scheme to defraud investors will now be punishable by a fine and a prison sentence of up to 25 years
• Increasing the maximum fines and prison sentences for other existing securities-related crimes. In addition, directs the U.S. Sentencing Commission to adopt Federal Sentencing Guidelines
• Amending the bankruptcy code to prevent the use of bankruptcy to avoid liability incurred due to federal or state securities law violations
• Extending the statute of limitations for investors to file a civil action for securities fraud from 1 year to 2 years after discovery of the facts and from 3 years to 5 years after occurrence of the fraud
• Providing protection to whistle-blowing employees

For more information:
The Public Company Accounting Oversight Board
and The Sarbanes-Oxley Act