sarbanes oxley act overview-v4-final v1
TRANSCRIPT
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Sarbanes Oxley Act, 2002- An Overview
Vijay Kumar C.A.
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1. Corporate frauds leading to SOX
2. Objectives and applicability
3. Contents in detail:1. Established independent oversight of public company audits
2. Strengthened audit committees and corporate governance
3. Transparency, Accountability and Investor protection
4. Internal controls over financial reporting(S.404)
5. Enhanced auditor independence
4. Is SOX compliance mandatory in India?
5. Questions
Contents
Enron- Manipulation of books of accounts to indicate favorable performance-wrong revenue recognition- Bankruptcy-Investors lost > $74 bn-4000 job loss-24year imprisonment
WorldCom- Wrong classification of expenses-
corporate loan to CEO-fraudulent book entries $11 bn
- CEO sentenced to 25 years-17,000 job loss, investors lost-$180 bn
Peregrine Systems- Inflated the company's revenue and stock price- Shareholders lost $4 billion. CEO imprisoned for 8 years
AdelphiaMisappropriation of funds $1bn –
Falsification of booksBankruptcy- Executives imprisoned
for 15 years
Impact> $500 bn.
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Sarbanes-Oxley aims to enhance corporate governance and strengthen corporate accountability
Objectives and applicability
• Privately held companies • All public companies in the U.S.
• International companies registered equity or debt securities with SEC
• Accounting firms providing auditing services to the above
The Act applies toDoesn’t apply to
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1. Established independent oversight of public company audits
SOX forged a new era for the US Audit profession
Till 2002, Auditing profession was self-regulated by the Auditing institutions
PCAOB (Public Company Accounting Oversight Board) was established to regulate audit firms
PCAOB regulates by setting ethical standards, audit quality inspections, investigations etc…
It suggests corrections. Has the authority to trial the wrongdoers
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2. Strengthened audit committees and corporate governance
Audit Committee: SOX require companies to establish audit committees
Independent Members: Requires the AC members be “independent”
External Auditors: AC, not management, are directly responsible for the appointment, compensation and oversight of the work of external auditors
Financial Expert: AC to have at least one member who is a “financial expert”
Whistleblower Policy (S.1107): AC to establish procedures for receiving whistleblower complaints regarding accounting, auditing and internal control irregularities
Confidentiality of whistleblower (S.1107): Entity should ensure confidentiality and anonymity and shall not retaliate against whistleblower else criminal punishment and imprisonment up to 10 years
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3. Transparency, Accountability and Investor protection
CEO and CFO certification of Financials – One of the core elements of SOX
Certification for each annual and quarterly report (S.302):
– They have reviewed the reports
– The information is fairly presented
– No omission material facts that would make the financial statements misleading
– They acknowledge their responsibility for establishing and maintaining internal controls. Also, have evaluated the effectiveness of Internal controls
If above certifications misleading or false, will result in heavy fines and imprisonment
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4.Internal controls over financial reporting(S.404):
Management’s responsibility to:
Evaluate Internal Controls effectiveness annually
Vouch for the effectiveness of internal controls
Disclose any prevailing weakness which may result in material misstatement
And further, the Auditors have to attest the same
Ethical requirements to the Board
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5. Enhanced auditor independence
• Sarbanes-Oxley strengthened auditor independence.
• If any other non-audit services are to be performed, the Audit Committee must pre-approve the same.
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Criticisms:
• SOX imposed additional duties and costs
• Act per se may not prevent fraud and abuse
• More Board time devoted
• SOX Revolutionized the attitude and cultural change
• No Enron or a WorldCom blowup post SOX
• Proactive Senior management involvement
• Better transparency, reporting and investor confidence
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Is SOX compliance mandatory in India?
• No, domestic company which is incorporated in India need not comply with SOX.
• Yes, company incorporated and listed outside India which has a mandate to comply with SOX and has an establishment in India.
• Though the SOX provisions are not mandatory for domestic companies, similar provisions are covered in SEBI guidelines under clause 49 of the listing agreement.
Copyright © 2012 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.
Questions
Vijay Kumar C.A.
Copyright © 2012 Accenture All Rights Reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.
Thank You