Sarbanes Oxley Act

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Sarbanes Oxley Act
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General Provisions of SOX

• To make rules governing audits of public
  companies
• To oversee audits and audit firms
• Independent of Federal Government
• Self-funded through fees assessed on CPA firms
  and publicly traded companies
• Not applicable to NFP or foreign listed companies

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Governing Members

• Five Members, three of whom must NOT be CPAs
• If the chair is a CPA, that person must be out of
  the business of auditing for the prior 5 years

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PCAOBs Duties

• Write audit standards, temporarily they have
  adopted the AICPAs
• Register public CPA firms to do audits
• Set Quality Control standards for audits
• Do peer reviews of CPA firms at least every
  three years
• Investigate and discipline
• CPE
• Review company disclosures and financial
  statements at least every three years

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Provisions for CPA firms

• Maintain audit papers for 7 years
• Managing Partner rotation every 5 yrs.
• Second partner rotation every 5 yrs.
• Audit manager rotation every 7 years
• Reports to audit committee
• All material findings
• Disclose fees for all types of services in proxy
  statement
• Review disclosures of firm
• Attest to Internal Control of firm

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Independence Rules

• Cant do other types of work for clients, de
  minimus exceptions
• Bookkeeping
• Systems design
• Valuation services
• Actuarial services
• Internal audit
• Management functions
• Other work needs pre-approval by audit committee
• Cant do audit if CEO, CFO from their firm, 1
  year wait period

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Audit Committee Reports

• All critical accounting policies
• Alternate treatments
• Internal Control findings
• Engagement letter
• Independence letter
• Management representation letter
• Material weaknesses

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Corporate Provisions

• Corporate Officers
• Certify means they have
• Reviewed the reports
• Reviewed internal control
• Certify that there are no material weaknesses
• Certify that there is no fraud
• Report fairly presents the financial condition
  of the company

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Corporate Provisions

• Corporate Officers
• Cant influence audit
• No trading during blackout periods
• In pro-formas, no material untrue statements,
  reconciliation
• No officer loans
• File any trading information within two business
  days
• Code of ethics
• Disclose off-balance sheet financing
• Disclose any non-GAAP financial measures

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Corporate Provisions

• Audit Committee of Board
• Responsible for oversight of external audit
• Be independent of the firm
• Set up whistle-blowing provisions
• One must be financial expert

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Penalties

• General penalties
• If alter, destroy, cover-up or falsify documents
  with objective to hinder investigation fines
  and up to 20 years

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Penalties Corporate Officers

• Give back to firms any bonuses, incentive
  compensation or equity based compensation earned
  within 12 months
• Give back profit on sales during blackout period
• False certification - 1m and up to 10 yrs.
• Willful false cert. - 5 m and up to 20 yrs.
• Company can hold up any payments to officers

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Penalties

• Audit firms
• Temporary suspension from industry
• Temporary or permanent revocation of license
• Cant go to another firm if suspended or license
  revoked
• Fines of up to 100,000 personal for each
  violation, firm up to 2 m
• If intentional up to 750,000 personal, firm up
  to 15 m
• Destroy working papers within 5 years fine and
  up to 10 years.

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Statute of Limitations

• Two years after violation found or
• Five years after violation