The Sarbanes-Oxley Act: Striking Corporate America with Fear of Fines and Jail Time

The new attestation regulations under the Sarbanes-Oxley Act are striking corporate America with fear of fines and jail time.  The ramifications of noncompliance are real.  Under the Sarbanes-Oxley Act, penalties for noncompliance are up to $5 million in fines or 20 years in prison.

With deadlines looming ominously, it is important that companies know what is required to satisfy each of the sections of the Sarbanes-Oxley Act and are actively working towards this type of regulatory compliance.

More than 15,000 publicly traded firms in the United States are regulated under the Sarbanes-Oxley Act.  As of today, none are ready— and most don’t even realize how unprepared they are— to comply”
- Adrian Bowles

Sarbanes-Oxley Act

As of June 15, of this year, most publicly traded companies in the United States, must be ready to meet a new stringent set of attestation regulations under the Sarbanes-Oxley Act.  Sarbanes-Oxley is aimed at improving the transparency and accuracy of financial accounting and record keeping, in an attempt to prevent scandals, such as Enron, from shaking the corporate world again.

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Section 404

Section 404 of Sarbanes-Oxley stipulates that managers and directors sign of on all receipts and payouts, and that they maintain adequate systems to prevent and detect unauthorized material transactions.  Section 404 also requires that a company’s independent auditors attest to and report on management’s controls assessment, following standards established by Public Companies Accounting Oversight Board.  According to Section 404, internal controls must insure accurate record maintenance, as well as financial reporting that complies with generally accepted accounting principles.

Section 409

Section 409, along with 404, controls the company’s ability to report on actual business processes and the company’s ability to assess the rules and policies designed to execute these processes.  Section 409 mandates that companies disclose information that portends a material change in financial or operating conditions on a rapid and current basis.

Implications of The Sarbanes-0xley Act

While many companies are taking steps towards regulatory compliance with the act, few realize just how significant its ramifications will be.  According to the specific wording of Sarbanes-0xley and the advice of one analyst, if information is available in a system, but nobody reads it, the CEO is still guilty.  Compliance with Sarbanes-Oxley is more than just a financial issue, it is a systems, document management and security issue, as well.

The key for companies in dealing with Sarbanes-Oxley stipulations is to find a way to be compliant without inhibiting workflow.

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