Highlights of Sarbanes Oxley Act

Highlights of
Sarbanes Oxley Act

The 3 Key Sections

Highlights of Sarbanes Oxley Act focuses on the three key sections of this act. The Sarbanes-Oxley Act has over a thousand sections. Some are still at the proposal stage, and exact implementation is not clear for many others.

But three key sections are going to need a lot of effort and systems [and therefore cost!] to ensure compliance. Deal with them and you've covered the toughest and most demanding aspects of corporate governance.

Section 302

This section requires “that the principal executive officer or officers and the principal financial officer or officers, or persons performing similar functions, certify in each annual or quarterly report filed or submitted... that they have reviewed the report and have satisfied themselves as to a number of specific aspects of the report’s content and the integrity of its production process."

The certification required here is obviously going to depend on the internal control processes required in 404 and the event monitoring and reporting required in 409.

Section 404

Requires“an internal control report, which shall

1. State the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and
2. Contain an assessment, as of the end of the most recent fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting.”

Section 404 might be the most critical section of the whole Act because it focuses specific attention on the controls and procedures for managing the financial reporting process. We have reviewed many commentaries on Sarbanes Oxley implementation and this is the area where companies and their auditors are finding huge expenditures of time and money to reach compliance.

Section 409

Requires that “Each issuer… shall disclose to the public on a rapid and current basis such additional information concerning material changes in the financial condition or operations of the issuer, in plain English, which may include trend and qualitative information and graphic representations, as… is necessary or useful for the protection of investors and in the public interest.”

By posting highlights of Sarbanes Oxley Act we hope to illuminate the profound reach of the Act. Businesses must pay more attention to the recognition, analysis and communication of material business events - less hyping good news and delaying or obfuscating bad news. Obviously, criteria are needed within each organization to determine promptly what constitutes a material change in financial conditions or operations.

While much of the onus is on management to identify and implement procedures and controls for compliance, there is also responsibility on the Board of Directors to monitor management and ensure that they have and follow adequate procedures. ODS-OL (Organizational Diagnostic Survey On-Line) is an extremely effective organizationall assessment tool to help the Board assess and monitor management and the organization.

Click here to contact Don Schwerzler about using ODS-OL as part of your Board's compliance and monitoring efforts.

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