Sarbanes oxley act overview-v4-final v1

Editor's Notes

• #3: Slide 3 take less time Pause afte the slide
• #4: These corporate scandals collectively resulted in billions of dollars loss to investors, caused job losses and a landslide fall of the sec market To restore public confidence in the reliability of financial reporting and the US securities market Sarbanes-Oxley Act of 2002 was passed. Then President George W. Bush signed it. It was named after the sponsors, Senator Paul Sarbanes and Representative Michael Oxley.
• #5: Governance is governing the executive work. All the components discussed form part of the corp governance. Shareholders provide capital and mgt runs the business. Board governs. Corporate governance is “accountability to providers of capital.” Good Corporate Governance is simply Good Business.
• #6: It inspects the audit quality through inspections of the audit (working papers). Firms that perform more than 100 audits are inspected annually and some others every third year.
• #7: (AC is made up solely of board members independent from management and they are responsible to oversee the company’s accounting and financial reporting process) (Meaning they could not be affiliated with the company or any subsidiaries, and did not directly or indirectly receive any compensation from the company other than in their capacity as members of the board) (Auditors duty is to attest whether the FS prepared by the management are fairly presented in accordance with the relevant financial reporting framework) Financial expert: since it helps review and challenge financial statements; determine whether internal controls are appropriate and sufficient and, if necessary, perform certain accounting actions to protect shareholder interests. If not, have to disclose the fact) (Generally, a financial expert is a person who, through education and experience, has an understanding of and experience in applying GAAP principles and preparing financial statements, experience with internal controls and procedures for financial reporting, and an understanding of audit committee functions) (In 2003, only a small number of audit committee members were financial experts. Today, more than 50% of all audit committee members are “financial expert”) The Cadbury Report defines independence as: Apart from their directors’ fees and shareholdings, they should be independent of management and free from any business or other relationship which could materially interfere with the exercise of their independent judgement.
• #8: With the above requirement, it set a clear tone for corporate responsibility and helped restore investors’ confidence in financial statements. Removing the defense of "I wasn't aware of financial issues" from CEOs and CFOs, holding them accountable for the accuracy of financial statements.
• #9: controversial aspects of SOX (Internal controls meaning: Processes that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. These include policies and procedures that: Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements)
• #10: All the above components form collectively the ‘corporate governance’ (all) and few are ‘corporate accountability’ items (CFO certi and AC). Auditing in india is governed by ICAI. It is not self regulated but is institutional and at central level.(govt involved) The auditors of a company are also requried to report (under MAOCARO, 1988 In India, the financial statements are required to be signed by or on behalf on the Board of Directors of the company. Under section 217 of the Companies Act, 1956, the directors are also required to issue a directors report about the affairs of the company during the year under report. One of the important components of the directors report is the Director's Responsibility Statement (issued pursuant to section 217 (2AA) of Under Section 628 of the Companies Act, 1956 any person(s) who make a statement in any return, report, certificate, balance sheet, prospectus, statement or other document which is false in any material particular or which omits any material fact is punishable with imprisonment for a term which may extend to two years and is also liable to a fine. Under the provisions of the Companies Act, 1956, the Central Government has the powers to conduct an investigation into the affairs of a company where in application in this regard is made by the members of the company (section 235). The Central Government can suo motto conduct the investigation, if in the opinion of the Company Law Board, the business of the company is being conducted with intent to defraud the creditors investors, members or other persons (section 237
• #11: Ensuring effective corporate governance in spirti rather than in letter.
• #12: all non-U.S. companies which file annual reports on Form 20-F, or on Form 40-F under the Canadian Multi-Jurisdictional Disclosure System. non-U.S. public companies that are required to file periodic reports with the SEC Subsidiaries of U.S Companies in India (provided they have a business connection in the U.S) apply to Sarbanes-Oxley Act will currently apply only to six companies listed on the NYSE — Dr Reddy's Laboratories, HDFC Bank Ltd, ICICI Bank Ltd, MTNL, Satyam Computer Services, Silverline Technologies Ltd, VSNL and Wipro and three companies listed on Nasdaq — Infosys, Rediff.com and Satyam Infoway (2002 data) Companies with unlisted ADRs which furnish information pursuant to Rule 12g3-2(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) generally are not subject by that reason alone to the new law. However, certain types of ADRs, which are listed on a U.S . exchange or market are subject to Sarbanes-Oxley because the company registers the underlying securities under § 12 of the Securities Exchange Act of 1934. India also took new corporate governance norms under Clause 49 of Listing Agreement wef December 2005 and is mandatory for all listed companies. A company with an Executive Chairman, at least 50 % of the board should comprise independent directors. In the case of a company with a non-executive Chairman, at least 1/3 of the board should be independent directors. CEO/CFO’s are required to assess internal controls and take corrective measures to check the deficiencies. CEO/CFOs are also required to certify the Financial Statements. All the companies are required to submit quarterly Compliance Reports at Stock Exchanges. A IC Compliance Certificate from auditors is to be obtained and annexed with Directors’ Report. Audit committee is mandatory; one of the directors is required to be "financially literate“. Whistle Blower Policy is to be set out to provide security to those who retaliate against wrong doers. Formal Code of Conduct is to be laid down for Board of Directors and Senior Management of the organization. Related Party Transactions are to be disclosed. Clause 49 applies only to listed companies in india
• #14: Clause 49 is the compilation of many AC is in company law