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David Kohrell: Sox Fundamentals – Part 1 – Overview

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Sarbanes Oxley (SOX) was sponsored by Sen. Paul Sarbanes (D-Md.) and Rep. Michael Oxley (R-Ohio) in the 107th U.S. Congress, Second Session and was signed into U.S. Law by President George W. Bush on July 30, 2002.  It is technically called the Public Company Accounting Reform and Investor Protection Act of 2002 
SOX rules apply to publicly traded firms that list their stock on any U.S.-based financial exchange.  That means businesses domiciled in the United States as well as any global company that is listed on one of the three main exchanges (NYSE, AMEX, and NASDAQ) or a regional exchange in Chicago or Kansas City.  PMP® test moment, remember regulations are legally binding, crafted and promulgated by governments versus standards that offer best practice such as ISO9000 (Quality) or ISO 17799 (IT Control).

As will be discussed in the final article, it also impacts private, public sector and non-profit organizations due to their supply chain relationships with publicly held companies.

A quick SOX overview.

There are eleven titles of SOX, each one with several sections.  Of specific relevance to project managers are the following five sections.  Future articles will dissect how each section referenced below impacts organizations and project managers.  For the complete SOX Act go to http://www.sec.gov/about/laws/soa2002.pdf

·   Title III – Corporate Responsibility

o    Section 302 –  Corporate Responsibility for Financial Reports: concerns assigning responsibility to corporate officers for establishing, maintaining, and auditing of internal controls to ensure that fiscal reporting is accurate — see the “C” level (chief executive office, chief fiscal officer, chief operating officer) need to fess up and tell the truth.

·    Title IV Enhanced Financial Disclosures:

o    Section 404 – Management assessment of internal controls: provides for due diligence in annual reporting.  As of the end of the fiscal year ending on or after June 15, 2006, the annual reports of firms covered by the act must begin to comply with the financial reporting disclosure requirements — see growth industry for auditing.
  • The annual internal control report shall state responsibility of management for establishing and maintaining an adequate internal control structure.
  • Each registered public accounting firm that issues the audit report, shall attest to, and report on, the assessment of the issuer.
o    Section 409 – Real time issuer declaration which introduces near real-time reporting of any critical financial information that might seriously affect corporate performance — see much dourer and stoic quarterly reports  No more Pets.com or Tyco hype.

·    Title VIII – Corporate and Criminal Fraud Accountability

o    Section 802 – Criminal Penalties for Altering Documents: this provision establishes criminal penalties for destroying or altering corporate documents — see Enron paper shredding party

Title IX – White Collar Crime Enhancements

o    Section 906 – Corporate responsibility for financial reports:  this establishes criminal penalties for false corporate reporting — see golf outings at federal minimum prisons, no caddies or hair dryers allowed.


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