Sarbanes Oxley Act – Flashcards

2002. SOX. response to all the big accounting scandals in the 2000's. created the PCAOB

public corporations accounting oversight board. oversees, inspects and regulates the auditors

the most extensive reason why SOX was made. a lot of it came down to it was to tempting to be fraudulent in order to make your options better. CEO's claimed ignorance while poor internal controls lead to inaccurate statements

part of SOX was to force CEO and CFO to sign off on the adequacy of of the financial statements and effectiveness of internal controls

special purpose entities. sneak tactic. allowed hiding of stuff off the balance sheet as well as pro forma statements

now there is way more regulation and disclosure rules for SPE's and all Pro forma has to be restated to be GAAP comparable.

a lot of investors where saying. "everything is fine." while secretly selling off tons of stock. now the form 4 requires them to disclose their trades

during pension blackouts. executives were selling stocks while employees were prohibited from doing so. now the insiders are also prohibited from doing so.

bernie was huge on this. the executives "borrowed" tons of corporate money. now no longer allowed to issue loans to executives.

management in bad faith would file to inflate all equity based bonuses and options which would lead to later recasting of financial statements with impunity. now those executives must disgorge any compensation they made for a restatement because of are correcting a fraudulent error

their was a poor trickle down affect on company ethics from the top management. now SOX requires the adoption of a code of ethics

company's targeted and hated whistleblowers so now their is a lot more protection and confidentiality for them especially with the audit committees.

the board was overseen and regulated by the CEO no more. at the same time the audit committee not the CEO deals with auditors.

the management unjustly pressured the third party auditors to give unqualified opinions on fraud now the crime to do so.

not to complex to understand. they had midnight shredding parties with cakes and lots of paper waste.

one of the biggest problems (looking at you arthur) was that the auditors were doubling as the consultants. now that is prohibited

basically the auditors were getting to friendly with their clients. now the audit firm needs to switch up who is working with the client every once in a while .

now a former employee of the audit firm needs to wait at least a year if they want to work with the former client

the board was too inattentive. now they are no longer ruled by the CEO. no more interlocked boards

the committee was too inexperienced. now you need at least one "financially literate member." and one with at least some "financial management experience.

the analysts were often employed by the investor so they had a conflict of interests. they are no longer employed as such.

the lawyers wouldn't rat out the executives now the Up-the-ladder reporting act requires them to do so.

that is self-regulatory organizations. The FASB and the AICPA were slack on GAAP and GASS was not enforced on the auditors. now the PCAOB

the SEC failed to catch the bad guys.