What the hell is Sarbanes Oxley Act?
US federal law passed in response to a number of major corporate and accounting scandals (like Enron and WorldCom).
How this act is carried on?
PCAOB (Public Company Accounting Oversight Board) is established for ORID (Overseeing, Regulating, Inspecting and Disciplining) accounting firms in their role as auditor of PUBLIC COMPANIES.
Enough of this, can I get straight to the provisions?
1. Certification of financial reports by CEO and CFO.
2. AUDIT COMMITTEE requirement for listed companies.
3. Quick reporting of INSIDER TRADING.
4. Ban on personal loans to EXECUTIVES or DIRECTORS.
5. PENALTIES (civil and criminal) for violation of securities law.
6. Significantly longer JAIL sentences and huge FINES for corporate executives who knowingly and willfully misstate financial statements.
7. Protection for WHISTLE BLOWERS who files complaint with OSHA (Occupational Safety and Health Administration) within 90 days.
8. Additional disclosures.
What is COSO framework? What are the components of Internal Control Framework as defined by COSO?
COSO – Committee of Sponsoring Organizations of the Treadway Commission.
Components –
1. Control Environment – Top management assumes full responsibility for its entire Internal Control Structure.
2. Risk Assessment – Undertake RAP (i.e. risk assessment procedures evaluating internal and external factors).
3. Control Activities – Implement policies and procedures helping to reduce the risk at an acceptably low level.
4. Communication – To appropriate officers.
5. Monitoring – To determine whether the system is adequate or not.
