Sarbanes
Oxley
In a nutshell, Sarbanes Oxley holds CEOs and directors accountable
and punishable by up to $5 million and 20 years in prison for the crimes
of the company, even if they had no knowledge of those crimes.
Criminal Penalties and Protection for Whistleblowers. The law
creates tough penalties for those who destroy records, commit securities
fraud and fail to report fraud.
Failure to Maintain Workpapers. It is now a felony with
penalties of up to 10 years to willfully fail to maintain "all audit or
review workpapers" for at least five years. The SEC will establish a
rule covering the retention of audit records and the Board will issue
standards that compel auditors to keep other documentation for seven
years.
Document Destruction. It is a felony with penalties of up to
20 years to destroy documents in a federal or bankruptcy investigation.
Securities Fraud. Criminal penalties for securities fraud
have been increased to 25 years.
Fraud Discovery. The statute of limitations for the discovery
of fraud is extended to two years from the date of discovery and five
years after the act. It was previously one year from discovery and three
from the act.
Other Provisions. Other provisions protect corporate
whistleblowers, ban personal loans to executives, and prohibit insider
trading during blackout periods.
Sarbanes-Oxley states that if you do anything to make records
covered by the law unavailable, then you can be imprisoned for up to 20
years and fined as well. It's not the first law to impose prison time
for "obstruction of justice," but it sure gets one’s attention.
Almost as
significant as the new criminal liabilities are the stringent new
sentences now on the books. Section 906 of the Act requires each public
company's CEO and CFO to certify, on threat of severe criminal
penalties, that periodic reports containing financial statements fully
comply with securities laws. The CEOs and CFOs found to have knowingly
violated their obligations in regard to Section 906 certifications will
be punished with a fine of up to $1 million and imprisonment of up to 10
years; willful false certification will be punishable by fines of up to
$5 million and imprisonment of up to 20 years.
This applies to Public companies only, but as a rule, many private
companies are striving to comply. SO also increased funding and added
200 more law enforcement agents to the payroll to enforce the
provisions. The Public Accounting Oversight Board has been given
authority to compel the production of records or require the continued
retention of a public accounting firm's records, even beyond what the
law otherwise requires.
In the briefest of terms, in order to comply
with SO, a company needs to take a
step-by-step approach for planning and performing an assessment of
financial results. Furthermore, the companies must now analyze and
evaluate the quality of the processes and controls used to report and
maintain these results.
The chart on the following page details the key requirements needed
to comply with Statement on Auditing Standards No. 99.
Chart reprinted from Journal of
Accountancy May 2004
- END -
|
