Sarbanes–Oxley Act

The Sarbanes -Oxley Act of 2002 (including SOX, Sarbox or SOA ) is a United States federal law, in response to corporate scandals such as Enron and Worldcom that improve the reliability of reporting by companies who take the U.S. public capital market in claim, should. It was named (Democrat ), and the Chairman of the Committee on Financial Services of the House of Representatives of the United States, Michael Oxley ( Republican) by its authors, the Chairman of the Committee on Banking, Housing and Urban Affairs of the Senate of the United States, Paul Sarbanes.

Overview

Objective of the Act is to restore investor confidence in the accuracy and reliability of published financial data of companies. The law applies to U.S. and foreign companies whose securities are traded on U.S. exchanges ( National Securities Exchanges ), their equity investments (equity securities) are traded in the United States, or whose securities are publicly offered in the United States ( Public Offering) as well as for its subsidiaries.

The Act is divided into Sections ( German: paragraphs or articles ). Under section 404 of the most popular and cost-intensive, each annual report must contain an assessment of the effectiveness of internal control over financial reporting by the management of the company and a judgment of the auditor on the effectiveness of internal control over financial reporting. An internal control system comprises all measures designed to ensure the quality of the created with the accounting interim and annual financial statements. Overall, the law leads to far-reaching changes in corporate governance.

The Sarbanes -Oxley Act was passed on 25 July 2002 by Congress and set with the signature of President George W. Bush on July 30, 2002.

The 66 -page law relates to various aspects of corporate governance, compliance and reporting obligations of public companies and the associated enforcement. In particular, the law with the Public Company Accounting Oversight Board ( PCAOB ) created an independent regulatory authority for accounting firms, examine the financial statements of companies that need to be filed with the Securities and Exchange Commission ( SEC) ( ie, the above -mentioned three categories of companies).

Some rules were completely new. Other regulations that were previously considered best practice standards or as a simple practice in the listing or in connection with SEC guidelines were governed by federal law.

On 2 March 2005, the U.S. Securities and Exchange Commission, foreign companies that are listed on U.S. stock exchanges ( foreign private issuers ) decided a postponement of one year for the fulfillment of the Section to grant 404 of the Sarbanes -Oxley Act. Thus, these companies must comply with the relevant requirements only for those fiscal years ending after July 15, 2006.

Character of the Law

The Sarbanes -Oxley Act is a U.S. federal law. The majority of the sections does not represent a separate new federal law is, but supplements or modifies existing federal laws, such as the Exchange Act ( Securities Exchange Act ) and the Securities Law ( Securities Act ) and calls on the U.S. Securities and Exchange Commission, to adopt new regulations. In addition, the federal criminal code or change the statute of limitations for certain crimes and the U.S. Sentencing Commission is directed to the federal guidelines for the metering of the penalty amount ( Federal Sentencing Guidelines ) to revise for certain crimes. Only the first title remains permanently preserved as a separate law. It creates the Public Company Accounting Oversight Board, a regulatory authority for accounting firms, examine the financial statements of companies that need to be filed with the U.S. Securities and Exchange Commission.

Scope

Almost all provisions of the Act apply to domestic and foreign companies whose securities are traded on U.S. exchanges whose securities are traded equity nature in the United States, or whose securities are publicly offered in the United States. In particular, the provisions relating to the supervisory authority for auditors, the Public Company Accounting Oversight Board ( PCAOB ) shall apply as from the filing of an application for registration of a security with the U.S. Securities and Exchange Commission in preparation for the public offering of that security in the United States. Only the requirements for the independence of the members and the duties of the Audit Committee ( Audit Committee ) are limited to companies whose securities are traded on U.S. stock exchanges. In addition, the interpretation of U.S. federal courts have limited the regulations on labor protection of hint -giving employees ( whistleblowers ) to employees of U.S. companies.

Entry into force

Some directly effective Sections of the Sarbanes -Oxley Act (eg Section 906 ) occurred already with the signing of the law by President George W. Bush on July 30, 2002. In other sections, which call on the U.S. Securities and Exchange Commission to adopt regulations relating to certain topics, the date of entry into force of the Regulation itself is determined. In the much-criticized Section 404, with the review of the internal control system (ICS ) deals for accounting, entry into force was due to various delays multiply by market capitalization (large accelerated filer, accelerated filer, non- accelerated filer ) and for U.S. American (domestic issuers ) or foreign securities issuers ( foreign private issuers ) moved differentiated. Section 404 ( a), which requires an assessment of the effectiveness of the internal control for financial reporting by management, joined now also for U.S. and foreign non- accelerated filer for fiscal years ending on or after December 15, 2007, with. In contrast, occurs in Section 404 ( b ), which calls for the examination of the effectiveness of the ICS for the accounts by the auditors, only for fiscal years ending on or after December 15, 2009 in force.

Content

• Confirmation of the accuracy of financial statements (similar to an affidavit ) by the CEO and the CFO
• Repayment performance fees of the CEO and CFO in the case of incorrect statements, which subsequently lead to corrections
• Prohibition of loans granted to the management
• Tighter regulations on the independence of the members of the Audit Committee ( engl. Audit Committee ) and of the administrative or supervisory board (board of directors )
• To approve obligation of the Audit Committee, non-audit services by the auditor
• Prohibition on providing audit-related services and non-audit services in addition to the annual audit by the appointed auditor
• Obligation of the auditor to inform the audit committee about critical processes and alternative proposals for accounting
• Creation of a new and independent supervisory authority of the Auditor: Public Company Accounting Oversight Board ( PCAOB ) with far-reaching monitoring rights
• Regulations on independence and increased liability of auditors (rotation of audit partners, conflicts of interest, etc.)
• Regulations for the establishment of whistleblower systems and whistleblower protection
• Reorganization of the responsibilities of managers of the listed company
• Advanced financial disclosure requirements (eg on the internal control system )
• Of the penal provisions

Conflicts of law

The scope of the Sarbanes -Oxley Act extends over American companies and audit firms to foreign firms and companies with a U.S. listing. The resulting extra-territorial effect of the Sarbanes -Oxley Act led to international discussions regarding potential conflicts with national rules; as the Sarbanes -Oxley Act provides for example, the individual liability of directors, which is not anchored in German law. In addition, the Sarbanes -Oxley Act requires, in part by lawyers actions and behaviors that can be used as party treason or breach of the duty of confidentiality lead to state or even criminal sanctions in Germany. How these conflicts can be resolved, is still largely unexplained.

The term Sarbanes -Oxley Act is widely used, which leads to that the appropriate directives of the European Community are led colloquially the term EuroSOX and comparable regulations in Japan under J -SOX.

Effects

The impact of the Sarbanes -Oxley Act are complex and involve three institutions.

There would be the one the direct impact of the Sarbanes -Oxley Act on the company ( here are the listed companies and accounting firms meant ) and, secondly, the indirect, bring the legislative changes at EU level and in Germany with it.

For audit firms, this means on the one prohibiting the simultaneous provision of auditing and consulting services and the other is the end of self-control ( change from peer review to monitoring). Especially the establishment of the PCAOB and its equipment with extensive monitoring and investigative powers led to legal changes in Germany. Thus, the U.S. has with its newly established and restrictive oriented supervision system increases the international standards to the monitoring of audit firms and put Germany in a tight spot. To set the laws APAG, BilReG and BARefG a fundamental reform of the supervisory system of the auditor dar. main goal of these laws is to achieve recognition of the German regulatory system by the PCAOB to conflicts arising from the Sarbanes -Oxley Act, to avoid.

For listed on a U.S. stock exchange company the Sarbanes- Oxley Act represents a substantial interference with the business processes. Here are the rules for the implementation and evaluation of an internal control system that is primarily intended to ensure the regularity of financial reporting, in the center. Not least because of the increased liability management requirements with respect to the accuracy of financial reporting focuses on the effectiveness of the ICS in the focus of management. So a well functioning ICS is the latest since the Sarbanes -Oxley Act in the fundamental interest of corporate management.