Compliance With Sarbanes-Oxley and Corporate Governance Reforms



The Sarbanes-Oxley Act of 2002 (“SOX” or “Sarbanes-Oxley”) was signed into law by President Bush on July 30, 2002 in an attempt to help eliminate accounting fraud and restore confidence in the nation’s financial markets following the collapse of Enron and other accounting fraud and corporate governance scandals.  Sarbanes-Oxley makes some of the most significant changes in decades in laws affecting directors, officers, and corporate reporting obligations.  Sarbanes-Oxley contains significant amendments to federal securities laws, including expanded CEO/CFO certification requirements for annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”), increased current reporting requirements, enhanced enforcement, increased civil and criminal penalties, and increased review of periodic filings by the SEC.  Sarbanes-Oxley establishes a new Public Company Accounting Oversight Board (“PCAOB”) responsible for regulating accounting firms that audit companies filing financial reports with the SEC.

The rules concerning corporate governance, financial audits, and financial reporting have changed significantly under Sarbanes-Oxley and the new SEC and SRO  rules.  Among other things, the audit committee has replaced management as the governance body with primary financial oversight responsibility in all public companies.  Management of public companies is required not only to establish and implement internal control over financial reporting, but to assess the effectiveness of this internal control, and report on it annually.  Sarbanes-Oxley and the SRO rules require that boards of directors must be more independent.  Audit committees have greater responsibilities, and must be composed entirely of “independent” directors.  Lawyers are required to report material violations of securities laws “up the ladder.”

This outline gives a brief summary of the major provisions of Sarbanes-Oxley, and discusses current developments in corporate governance, including developments under Sarbanes-Oxley, the SEC rules implementing Sarbanes-Oxley, and related New York Stock Exchange and Nasdaq rules.

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