A report on

THE SARBANES-OXLEY ACT

Submitted to:
Md. Zahead Kamal
Lecturer
Department of Accounting
Notre Dame University Bangladesh

Submitted by:
Mickey Mathew D.Costa
ID: 1412152
Class: Accounting 1 (Major)
Letter of Transmittal
November 21, 2017

Md. Zahead Kamal,

Department of Accounting,
Notre Dame University Bangladesh

Subject: Letter of Transmittal

Dear Sir,

With due respect I would like to state that we have reported on “The Sarbanes-Oxley ACT” under
the course: “Accounting Information System”.

I am requesting you to check our report thoroughly. Iwould be highly grateful if you kindly go
through our report.

Your consideration of our proposal is greatly appreciated.

Sincerely yours,

Mickey Mathew D.Costa

ID: 1412152
Accounting (Major)

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 Table of Contents
1. INTRODUCTION 1

2. DESCRIPTION 1

2.1 NEED FOR SOX ACT 1

2.2 WHAT IS THE SARBANES-OXLEY ACT? 2
2.3 OBJECTIVES OF SOX 3

3. 11 TITLES OF SARBANES-OXLEY 3

TITLE I: PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD 3

TITLE II: AUDITOR INDEPENDENCE 3
TITLE III: CORPORATE RESPONSIBILITY 4
TITLE IV: ENHANCED FINANCIAL DISCLOSURES 4
TITLE V: ANALYST CONFLICTS OF INTEREST 4
TITLE VI: COMMISSION RESOURCES AND AUTHORITY 4
TITLE VII: STUDIES & REPORTS 4
TITLE VIII: CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY 4
TITLE IX: WHITE COLLAR CRIME PENALTY ENHANCEMENT 4
TITLE X: CORPORATE TAX RETURNS 4
TITLE XI: CORPORATE FRAUD ACCOUNTABILITY 5

6. CONCLUSION 5

7. REFERENCES 6

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Abstract
The Sarbanes-Oxley Act of 2002 (often shortened to SOX) is legislation passed by the U.S.
Congress to protect shareholders and the general public from accounting errors and fraudulent
practices in the enterprise, as well as improve the accuracy of corporate disclosures. The Sarbanes-
Oxley Act was enacted in response to a series of high-profile financial scandals that occurred in
the early 2000s at companies including Enron, WorldCom and Tyco that rattled investor
confidence. The act, drafted by U.S. Congressmen Paul Sarbanes and Michael Oxley, was aimed
at improving corporate governance and accountability. Now, all public companies must comply
with SOX. After going through this report you will have a brief about SOX, why it is needed for
a public company and some of its underlying objectives and title.

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 1. Introduction
Sarbanes–Oxley, Sarbox or SOX, is a United States federal law that set new or expanded
requirements for all U.S. public company boards, management and public accounting firms. The
Sarbanes-Oxley Act of 2002 (SOX) is an act passed by U.S. Congress in 2002 to protect investors
from the possibility of fraudulent accounting activities by corporations. There are also a number
of provisions of the Act that also apply to privately held companies, for example the willful
destruction of evidence to impede a Federal investigation. The SOX Act mandated strict reforms
to improve financial disclosures from corporations and prevent accounting fraud.
The Sarbanes-Oxley Act of 2002 cracks down on corporate fraud. It created the Public Company
Accounting Oversight Board to oversee the accounting industry. It banned company loans to
executives and gave job protection to whistleblowers. The Act strengthens the independence and
financial literacy of corporate boards. It holds CEOs personally responsible for errors in
accounting audits.
The 2002 Sarbanes-Oxley Act aims particularly at public accounting firms that participate in audits
of corporations and was passed in response to a number of corporate accounting scandals that
occurred between 2000-2002. The bill, which contains eleven sections, was enacted as a reaction
to a number of major corporate and accounting scandals, including Enron and WorldCom. The
sections of the bill cover responsibilities of a public corporation’s board of directors, adds criminal
penalties for certain misconduct, and required the Securities and Exchange Commission to create
regulations to define how public corporations are to comply with the law.

2. Description
2.1 Need for SOX act
The SOX Act was created in response to accounting malpractice in the early 2000s, when public
scandals such as Enron Corporation, Tyco International plc, and WorldCom shook investor
confidence in financial statements and demanded an overhaul of regulatory standards. With these
big names in the news for fraud, public confidence became rather shaky.
The Enron scandal was certainly enough to show the American public and its representatives in
Congress that new compliance standards for public accounting and auditing were needed. Enron
was one of the biggest and, it was thought, one of the most financially sound companies in the
U.S.
Enron, located in Houston, TX, was considered one of a new breed of American companies that
participated in a variety of ventures related to energy. It bought and sold gas and oil futures. It built
oil refineries and power plants. It became one of the world's largest pulp and paper, gas, electricity,
and communications companies before it bankrupted in 2001. Several years before the Enron
bankruptcy, the government had deregulated the oil and gas industry to allow more competition,

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but this also made it easier to cheat. Enron, among other companies, took advantage of this
deregulation.
The various misdeeds and crimes committed by Enron were extensive and ongoing. Particularly
damaging misrepresentations pumped up earnings reports to shareholders, many of whom
eventually suffered devastating losses when the company failed. But there were many other
instances of dishonesty and fraud, including actual embezzlement of corporate funds by Enron
executives and illegal manipulations of the energy market.
2.2 What Is the Sarbanes-Oxley Act?
In order to cut down on the incidence of corporate fraud, Senator Paul Sarbanes and Representative
Michael Oxley drafted the Sarbanes-Oxley Act. The intent of the SOX Act was to protect investors
by improving the accuracy and reliability of corporate disclosures by
 Closing loopholes in recent accounting practices
 Strengthening corporate governance rules
 Increasing accountability and disclosure requirements of corporations, especially corporate
executives, and corporation's public accountants
 Increasing requirements for corporate transparency in reporting to shareholders and
descriptions of financial transactions
 Strengthening whistle-blower protections and compliance monitoring
 Increasing penalties for corporate and executive malfeasance
 Authorizes the creation of the Public Company Accounting Oversight board to further
monitor corporate behavior, especially in the area of accounting
In response to what was widely seen as collusion by Enron's accountants, The Arthur Andersen
firm, in Enron's fraudulent behavior, SOX also changes the way corporate boards deal with their
financial auditors. All companies, according to SOX, must provide a year-end, report about the
internal controls they have in place and the effectiveness of those internal controls.
Although the Sarbanes-Oxley Act of 2002 is generally credited with having reduced corporate
fraud and increasing investor protections, it also has its critics, some of whom note the degree to
which Congress has weakened the act by withholding funding necessary to put these reforms into
motion and by passing bills that effectively counter the intent of the act. Other critics, on the
contrary, oppose the act because it increases corporate costs and reduces corporate
competitiveness.

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2.3 Objectives of SOX
At its highest level, SOX establishes the following four key objectives:
 Make management accountable
 Enhance disclosure
 Conduct regular reviews by the SEC
 Make external auditors accountable (establishment of the Public Company Accounting
Oversight Board (“PCAOB”))
The main objective of SOX is to restore investor confidence in management and the reliability of
financial results and other nonfinancial information disclosed by public companies. The legislation
requires that CEOs, CFOs and independent external auditors of public companies include the
following in the companies’ quarterly SEC filings.
 Certify the effectiveness of disclosure controls and procedures and disclose any changes in
internal control in the financial statements
 Certify the effectiveness of Internal Controls Over Financial Reporting (ICFR) (applicable
to the annual 10-K filing only)
 Where required, include an external auditor’s attestation on the effectiveness of the
company’s ICFR (applicable to the annual 10-K filing only)
 Disclose all deficiencies in design or operation of disclosure controls and procedures and/or
ICFR that could have a material impact on the financial statements

3. 11 Titles Of Sarbanes-Oxley
There are many details outlined by this monumental Act, broken down into 11 different titles.
Here are the fundamental points from each title that help make the overall premise more
understandable for businesses and investors.
Title I: Public Company Accounting Oversight Board
The Public Company Accounting Oversight Board was instituted in order to manage the audit of
all public corporations. The board creates and sets forth the standards and rules for auditing
reports as well as inspects, investigates and enforces compliance with these rules. The board is
also tasked with central oversight of the independent accounting firms assigned to provide
auditing services.
Title II: Auditor Independence
In aims of removing conflicts of interest, there are nine sections within Title II that outline
standards for external auditor independence. For instance, audit firm employees must wait one-
year after leaving an accounting firm to become an executive for a former client. There are

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restrictions concerning new auditor approval and auditor reporting requirements. A company that
provides auditing services to a client is not legally allowed to provide any other services to that
same client.
Title III: Corporate Responsibility
In order to further uphold accountability, regulations impose all senior executives with the
individual responsibility of the accuracy of financial reports.
Title IV: Enhanced Financial Disclosures
The Act greatly increases the number of disclosures a company must make public such as off-
balance-sheet transactions, stock transactions involving corporate officers, and pro-forma
figures. All of these disclosures and more must be reported in a timely fashion.
Title V: Analyst Conflicts Of Interest
The point of Title V is to improve investor confidence regarding the reporting of securities
analysts. This section includes codes of conduct as well as the disclosure of any and all conflicts
of interests known to the company. Everything must be reported, such as if the analyst holds any
stock in the company or has received any corporate compensation, or if the company is a client.
Title VI: Commission Resources And Authority
Title VI outlines a number of practices including the SEC’s authority to remove someone from
the position of a broker, advisor or dealer based upon certain conditions.
Title VII: Studies & Reports
Title VII outlines certain studies and reports the SEC and the Comptroller General must perform.
These tests and reports include analyzing public accounting firms, credit rating agencies and
investment banks to ensure they do not play a role in facilitating poor/illegal practices in
securities markets.
Title VIII: Corporate and Criminal Fraud Accountability
Any alterations, concealment or destruction of records in hopes of influencing the outcome of a
Federal investigation is punishable by fines and up to 20-years in prison. Anyone that plays a
role in defrauding shareholders of publicly traded companies is subject to imprisonment and
fines. Title VII also outlines special protections for whistle-blowers.
Title IX: White Collar Crime Penalty Enhancement
There are 6 sections in Title IX, all in aims of increasing criminal penalties for white-collar
crimes. This Title adds failure to certify corporate financial reports as a criminal offense, and
encourages stronger sentencing guidelines in hopes of making punishments outweigh the
potential for quick financial gains.
Title X: Corporate Tax Returns
Section 1001 from Title X mandates the need for the Chief Executive Officer to sign company
tax returns.

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Title XI: Corporate Fraud Accountability
Title XI includes seven sections dedicated to defining corporate fraud. It defines any tampering
of records as a criminal offense punishable under specific penalties. It also outlines sentencing
guidelines and increases overall penalties. This particular Title gives the SEC the ability to freeze
transactions considered “large” or “unusual.”

4. Conclusion
After Sarbanes-Oxley Act of 2002 (SOX) was enacted, companies were forced to rethink their
reporting to keep from incurring penalties, but SOX compliances benefits organizations in many
significant ways. SOX created a new approach to financial reporting that has created greater
market trust. In fact, for private companies that are thinking about going public, SOX compliance
benefits them precisely because it allows better IPO pricing. This increases overall market strength
as well as individual corporate financial stability.
Also, with businesses becoming increasingly interconnected through online means, branches of
companies have a responsibility to ensure that IT systems follow SOX compliance rules. The
Sarbanes-Oxley Act places the responsibility and accountability for the tracking of information for
activities that have an impact upon financial performance very clearly with those in managerial
positions.
With the implementation of SOX, a strong internal control environment is created within which
can be beneficial for all organizations, whether operating as a public, private, or nonprofit
organization. Companies that have already started enhancing their internal control environment
can gain a competitive edge over those that have not. These entities may be able to enhance
confidence in their internal financial reporting, facilitate a more efficient due diligence process in
a merger or acquisition situation, and take advantage of opportunities faster than their peers. Better
risk management policy, reduced fraud risk, enhanced governance, and strengthened controls
resulting from embracing these principles can generate a lot of benefits for nonpublic
organizations.

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5. References

1. Peavler, R. (2017, July 01). The Enron Scandal That Prompted the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act and Corporate Fraud. Retrieved from
https://www.thebalance.com/sarbanes-oxley-act-and-the-enron-scandal-393497
2. Sarbanes-Oxley Act Of 2002 – SOX. Retrieved from
https://www.investopedia.com/terms/s/sarbanesoxleyact.asp
3. Good, B. (2016, June 6). 11 IMPORTANT KEY POINTS FROM EACH TITLE OF
SARBANES-OXLEY ACT. Retrieved from
http://www.dgkgrouppc.com/blog.html?b_blog=P4O9d+kaqNjaCwcfcEe+rmBAJuWfHa
xVTvIid64UH3EKA9DcJ8il0e7Dr/m5L3fH
4. Ryan, E. (2016, August 12). SOX Compliance: Background, Components and Key
Provisions. Retrieved from
http://www.ryansharkey.com/blog/sox-compliance-background-components-and-key-
provisions
5. Parker, C. (2017, March 13). The Increasing Importance of SOX Reporting. Retrieved from
https://www.hrconsultancy.co.uk/blog/view/190/the-increasing-importance-of-sox-
reporting.aspx
6. Amadeo, K. (2017, July 18). Sarbanes-Oxley Summary: How It Stops Fraud. 4 Ways the
Sarbanes-Oxley Act of 2002 Stops Corporate Fraud. Retrieved from
https://www.thebalance.com/sarbanes-oxley-act-of-2002-3306254