Sarbanes-Oxley For Dummies

Jill Gilbert Welytok

• Publisher: For Dummies
• Year: 2011
• Print ISBN: 9780470223130
• eBook ISBN: 9781118052198
• Edition: 2
• Topic: Business
• Subtopic: Accounting
• Index: Business

You may not believe that there's a fun and easy way to comply with Sarbanes –Oxley, but once you have Sarbanes-Oxley For Dummies, Second Edition in front of you, you're sure to change your mind. This friendly guide gets you quickly up to speed with the latest SOX legislation and shows you safe and effective ways to reduce compliance costs.

In plain English, this completely reliable handbook walks you through the new and revised SOX laws, introduces compliance strategies for changed and unchanged guidelines, and gives you an effective framework for implementation You'll find out how to create an efficient audit committee, purchase and use SOX software solutions, and make practical, cost-effective decisions in your initial compliance year and beyond. You'll also find proven strategies for staying public or going private and learn how to deal with all those SOX forms. Discover how to:

• Establish SOX standards for IT professionals
• Minimize compliance costs in every area of your company
• Survive a section 404 audit
• Avoid litigation under SOX
• Anticipate future rules and trends
• Create a post-SOX paper trail
• Bolster your company's standing and reputation
• Work with SOX in a small business
• Meet new SOX standards
• Build a board that can't be bought
• Comply with all SOX management mandates

Complete with invaluable tips on how to form an effective audit committee, Sarbanes-Oxley For Dummies is the resource you need to keep your SOX clean.

Part I

The Scene Before and After SOX

In this part . . .

The Sarbanes-Oxley Act, or SOX, didn’t pop up out of nowhere. Rather, its passage is rooted in some steamy corporate scandals. This part examines how Congress responded to events surrounding Enron, Tyco, WorldCom, Global, TelLink, and Adelphia in a bipartisan whirlwind. This part also looks at how this far-reaching legislation affects existing securities legislation, what it says, what it certainly doesn’t say, and how it has spawned some mighty media myths.

Chapter 1

The SOX Saga

In This Chapter

Riding the wave of political support for SOX

Discovering the various roles of those affected by SOX

Looking at the opposition to SOX

Surveying SOX’s impact

Debunking some common media myths about SOX

In response to a loss of confidence among American investors that was reminiscent of the Great Depression, President George W. Bush signed the Sarbanes-Oxley Act into law on July 30, 2002. SOX, as the law was quickly dubbed, is intended to ensure the reliability of publicly reported financial information and bolster confidence in U.S. capital markets. SOX contains expansive duties and penalties for corporate boards, executives, directors, auditors, attorneys, and securities analysts.

Although most of SOX’s provisions are mandatory only for public companies that file a Form 10-K with the Securities and Exchange Commission (SEC), many private and nonprofit companies are facing market pressures to conform to the SOX standards as they become the norm. Privately held companies that fail to reasonably adopt SOX-type governance and internal control structures are facing increased difficulty in raising capital. They’re also facing higher insurance premiums and a loss of status among potential customers, investors, and donors. They’ve even been threatened with greater civil liability. In the nonprofit world, the lack of SOX internal controls may be viewed as a violation by the directors of the business judgment rule.

July 30, 2007, marked the fifth anniversary of SOX, the law deemed to be the most significant piece of corporate legislation. Now look at the last few years. What was SOX supposed to accomplish? What did it actually accomplish? Who are the winners and losers in the SOX saga? In this chapter, I take a look at the political impetus for SOX and summarize some key provisions of the SOX statute in plain English. I also dispel a few common SOX myths.

Plowing Through the Politics of SOX

SOX passed through both houses of Congress on a wave of bipartisan political support not unlike that which accompanied the passage of the U.S. Patriot Act after the terrorist attacks of 2001. Public shock greased the wheels of the political process. Congress needed to respond decisively to the Enron media fallout, a lagging stock market, and looming reelections (see Chapter 2 for details). SOX passed in the Senate 99–0 and cleared the House with only three dissenting votes.

Because political support for SOX was overwhelming, the legislation wasn’t thoroughly debated. Thus, many SOX provisions weren’t painstakingly vetted and have since been questioned, delayed, or slated for modification.

For the past 70 years, U.S. securities laws have required regular reporting of results of a company’s financial status and operations. SOX now focuses on the accuracy of what’s reported and the reliability of the information-gathering processes. Because of SOX, companies must implement internal controls and processes that ensure the accuracy of reported results.

Prior to SOX, the Securities Act of 1933 was the dominant regulatory mechanism, and it remains in force today. The 1933 Act requires that investors receive relevant financial information on securities being offered for public sale, and it prohibits deceit, misrepresentations, and other fraud in the sale of securities.

The SEC enforces the 1933 Act requiring corporations to register stock and securities that they offer to the public. The registration forms contain financial statements and other disclosures to enable investors to make informed judgments when purchasing securities. (For more about the securities registration process, flip to Chapter 3.) The SEC requires that the information companies provide be accurate and certified by independent accountants.

SEC registration statements and prospectuses become public shortly after they’re filed with the SEC. Statements filed by U.S. domestic companies are available on the EDGAR database accessible at www.sec.gov.

Taking advantage of a loophole

SOX provides that publicly traded corporations of all sizes must meet its requirements. However, not all securities offerings must be registered with the SEC. Some exemptions from the registration requirement include:

Private offerings to a limited number of persons or institutions

Offerings of limited size

Intrastate offerings

Securities of municipal, state, and federal governments

The SEC exempts these offerings to help smaller companies acquire capital more easily by lowering the cost of offering securities to the public. In contrast, SOX provides that publicly traded corporations of all sizes must meet certain specific requirements depending on the size of the corporation.

Not everyone’s a SOX fan

In 2002, only three Congressmen opposed the 2002 passage of SOX: GOP Representatives Ron Paul of Texas, Jeff Flake of Arizona, and Mac Collins of Georgia. Congressman Flake observed:

Obviously there are businesses that were acting in a fraudulent manner. We still have that today, and there are laws on the books th...

Table of contents

• Title
• Contents
• Introduction
• Part I : The Scene Before and After SOX
• Part II : SOX in the City: Meeting New Standards
• Part III : Scaling Down Section 404
• Part IV : SOX for Techies
• Part V : To SOX-finity and Beyond
• Part VI : The Part of Tens
• Part VII : Appendixes
• : Further Reading