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What is contained in Title III?
- Corporate Responsibility
- Establish an audit committee
- *** the audit committee must create and monitor an anonymous whistleblower hotline
- *** have procedures to investigate & then retain the complaints
- Corporate officials must sign certain representations regarding annual and quarterly reports
- No officer or director may take any action that would do bad things with the auditor
- Forfeiture of certain bonuses and profits if FS restatement due to material non-compliance (failure to comply)
The CEO & CFO must sign which assertions regarding the financial statements?
- They have reviewed the report
- The FS comply with the Securities Exchg Act of 1934
- The FS do not contain untrue statements
- The FS do not omit material info
- The signing officers assume responsibility for internal controls --
- ** proper design, or if a significant change or deficiency that it was disclosed to the auditor & audit committee
- ** were evaluated within 90 days prior to FS,
- ** they are effective
- The officers have disclosed any fraud (regardless of materiality)
What is included in Title IV?
- Enhanced Financial Disclosures
- * materially correcting adjustments
- * off-balance sheets transactions (operating leases, contingent obligations, relationshps with unconsolidated subsidiaries)
- * use of SPEs/VIEs
- Officers and Stakeholders
- * Related party or Conflict of interest = loans to or transactions with directors or officers
- * Use of a code of ethics for senior officers
- * Disclosure of audit committee financial expert
- * Conformance of pro forma FS (no untrue stmts, no omitted material info, follows GAAP)
- *Assessment of internal controls
- SEC: The SEC's right to review disclosures
What is contained in Title VIII
- Corporate and Criminal Fraud Accountability
- * penalties for altering documents to impede an investigation = fine +/- 20 yrs
- * statute of limitations for securities fraud = the earlier of 2 yrs after discovering the violation or 5 yrs after the violation
- * penalties for securities fraud = fine +/- 25 yrs
- * whistle-blower protection and compensatory damages (if descriminated against, the WB files a report with the Secretary of Labor)
What is contained in Title IX
- White-Collar Crime Penalty Enhancements
- * conspiring to commit is the same penalty as actually committing.
- * Mail & wire fraud = fine +/- 20 yrs
- * Violation of ERISA = $100,000 per individual or $500,000 per entity +/- 10 yrs
- * If an officer certifies the FS knowing that it does not comply with all requirements = $1,000,000 +/- 10 yrs
- * If an officer willfully certifies the FS knowing that it does not comply = $5,000,000 +/- 20 yrs
What is contained in Title XI
- Corporate Fraud Accountability
- * the SEC may petition the court to require the issuer to escrow the expected penalty payments in an interest-bearing acct for 45 days.
- * the SEC may prohibit someone from serving an officers or directors either temporarily or permanently
- * retaliation against a whistle-blower = fine +/- 10 yrs
What is a principal stockholder?
Someone who owns 10% or more of the entity's stock
For a member on the Audit Committee, which of the following would destroy independence: (1) receipt of the President's salary, (2) receipt of a Board Member's salary?
(1) being paid as an employee of the company would destroy independence. A member of the Board may be compensated for their time on the Board.
True / False: SOX requires the disclosure of the name of the financial expert on the Audit Committee
- The entity must disclose that it has a financial expert, or the reason why one doesn't exist, but not that person's name.
What is securities fraud?
Using misleading information with the intent of influencing people to purchase or sell securities
What are the specific responsibilities of the Audit Committee?
- Membership on the Audit Committee: must be a member of the BoD; must be (I) of the company.
- External Auditor: Appoint, determine the compensation for, provide oversight of the external auditor. Perform resolution of disagreements b/t the external auditor and management.
- Whistleblower: Create an anonymous method of reporting accounting-related infractions; create a method of investigation; perform the investigation; retain the information.
Which of the following is necessary to be an audit committee financial expert: (1) limited understanding of GAAP, (2) experience preparing tax returns, (3) experience with internal accting controls, (4) a licensed CPA
(3) experience with internal accounting controls
True / False: SOX requires a code of ethics for internal reporting of code provisions and accountability for adherence to the code
- The SEC has internal reporting requirements, but these are not stated in SOX