OVERSIGHT
Response to the following :
Selected sections of the Sarbanes-Oxley Act follow:
Public Law 107-204-July 30, 2002
Section 1. Short title. This Act may be cited as the "Sarbanes-Oxley Act of 2002"
TITLE I-Public Company Accounting Oversight Board
Sec. 101. Establishment; Administrative Provisions
(a) Establishment of Board-There is established the Public Company Accounting Oversight Board, to oversee the audit of public companies that are subject to the securities laws, and related matters, in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports for companies the securities of which are sold to, and held by and for, public investors. The Board shall be a body corporate, operate as a nonprofit corporation, and have succession until dissolved by an Act of Congress.
(b) Duties of the Board-The Board shall, subject to action by the Commission under section 107, and once a determination is made by the Commission under subsection (d) of this section-
(1) register public accounting firms that prepare audit reports for issuers, in accordance with section 102;
(2) establish or adopt, or both, by rule, auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports for issuers, in accordance with section 103;
(3) conduct inspections of registered public accounting firms, in accordance with section 104 and the rules of the Board;
(4) conduct investigations and disciplinary proceedings concerning, and impose appropriate sanctions where justified upon, registered public accounting firms and associated persons of such firms, in accordance with section 105;
(5) perform such other duties or functions as the Board (or the Commission, by rule or order) determines are necessary or appropriate to promote high professional standards among, and improve the quality of audit services offered by, registered public accounting firms and associated persons thereof, or otherwise to carry out this Act, in order to protect investors, or to further the public interest;
(6) enforce compliance with this Act, the rules of the Board, professional standards, and the securities laws relating to the preparation and issuance of audit reports and the obligations and liabilities of accountants with respect thereto, by registered public accounting firms and associated persons thereof; and
(7) set the budget and manage the operations of the Board and the staff of the Board.
Sec. 102. Registration with the Board
(a) Mandatory Registration-Beginning 180 days after the date of the determination of the Commission under section 101(d), it shall be unlawful for any person that is not a registered public accounting firm to prepare or issue, or to participate in the preparation or issuance of, any audit report with respect to any issuer.
Sec. 103. Auditing, Quality Control, and Independence Standards and Rules
(a) Auditing, quality control, and ethics standards
(1) In General-The Board shall, by rule, establish, including, to the extent it determines appropriate, through adoption of standards proposed by 1 or more professional groups of accountants designated pursuant to paragraph (3)(A) or advisory groups convened pursuant to paragraph (4), and amend or otherwise modify or alter, such auditing and related attestation standards, such quality control standards, and such ethics standards to be used by registered public accounting firms in the preparation and issuance of audit reports, as required by this Act or the rules of the Commission, or as may be necessary or appropriate in the public interest or for the protection of investors
Sec. 104. Inspections of Registered Public Accounting Firms
(a) In General-The Board shall conduct a continuing program of inspections to assess the degree of compliance of each registered public accounting firm and associated persons of that firm with this Act, the rules of the Board, the rules of the Commission, or professional standards, in connection with its performance of audits, issuance of audit reports, and related matters involving issuers.
Sec. 105. Investigations and Disciplinary Proceedings
(a) In General-The Board shall establish, by rule, subject to the requirements of this section, fair procedures for the investigation and disciplining of registered public accounting firms and associated persons of such firms.
(3) Noncooperation with Investigations
(A) In General-If a registered public accounting firm or any associated person thereof refuses to testify, produce documents, or otherwise cooperate with the Board in connection with an investigation under this section, the Board may-
(i) suspend or bar such person from being associated with a registered public accounting firm, or require the registered public accounting firm to end such association;
(ii) suspend or revoke the registration of the public accounting firm; and
(iii) invoke such other lesser sanctions as the Board considers appropriate, and as specified by rule of the Board.
Sec. 106. Foreign Public Accounting Firms
(a) Applicability to Certain Foreign Firms
(1) In General-Any foreign public accounting firm that prepares or furnishes an audit report with respect to any issuer, shall be subject to this Act and the rules of the Board and the Commission issued under this Act, in the same manner and to the same extent as a public accounting firm that is organized and operates under the laws of the United States or any State, except that registration pursuant to section 102 shall not by itself provide a basis for subjecting such a foreign public accounting firm to the jurisdiction of the Federal or State courts, other than with respect to controversies between such firms and the Board.
Sec. 107. Commission Oversight of the Board
(a) General Oversight Responsibility-The Commission shall have oversight and enforcement authority over the Board, as provided in this Act.
Sec. 108. Accounting Standards
(a) Amendment to Securities Act of 1933-Section 19 of the Securities Act of 1933 (15 U.S. C. 77s) is amended
(b) Recognition of Accounting Standards
(1) In General-In carrying out its authority under subsection (a) and under section 13(b) of the Securities Exchange Act of 1934, the Commission may recognize, as "generally accepted" for purposes of the securities laws, any accounting principles established by a standard setting body-
(A) that-
(i) is organized as a private entity;
(ii) has, for administrative and operational purposes, a board of trustees (or equivalent body) serving in the public interest, the majority of whom are not, concurrent with their service on such board, and have not been during the 2-year period preceding such service, associated persons of any registered public accounting firm;
(iii) is funded as provided in section 109 of the Sarbanes-Oxley Act of 2002;
(iv) has adopted procedures to ensure prompt consideration, by majority vote of its members, of changes to accounting principles necessary to reflect emerging accounting issues and changing business practices; and
(v) considers, in adopting accounting principles, the need to keep standards current in order to reflect changes in the business environment, the extent to which international convergence on high quality accounting standards is necessary or appropriate in the public interest and for the protection of investors; and
(B) that the Commission determines has the capacity to assist the Commission in fulfilling the requirements of subsection (a) and section 13(b) of the Securities Exchange Act of 1934, because, at a minimum, the standard setting body is capable of improving the accuracy and effectiveness of financial reporting and the protection of investors under the securities laws.
Sec. 109. Funding
(a) In General-The Board, and the standard setting body designated pursuant to section 19(b) of the Securities Act of 1933, as amended by section 108, shall be funded as provided in this section.
(d) Annual Accounting Support Fee for the Board
(1) Establishment of Fee-The Board shall establish, with the approval of the Commission, a reasonable annual accounting support fee (or a formula for the computation thereof), as may be necessary or appropriate to establish and maintain the Board. Such fee may also cover costs incurred in the Board's first fiscal year (which may be a short fiscal year), or may be levied separately with respect to such short fiscal year.
(2) Assessments-The rules of the Board under paragraph (1) shall provide for the equitable allocation, assessment, and collection by the Board (or an agent appointed by the Board) of the fee established under paragraph (1), among issuers, in accordance with subsection (g), allowing for differentiation among classes of issuers, as appropriate.
(e) Annual Accounting Support Fee for Standard Setting Body-The annual accounting support fee for the standard setting body referred to in subsection (a)-
(1) shall be allocated in accordance with subsection (g), and assessed and collected against each issuer, on behalf of the standard setting body, by 1 or more appropriate designated collection agents, as may be necessary or appropriate to pay for the budget and provide for the expenses of that standard setting body, and to provide for an independent, stable source of funding for such body, subject to review by the Commission; and
(2) may differentiate among different classes of issuers.
TITLE II-Auditor Independence
Sec. 201. Services Outside the Scope of Practice of Auditors
(a) Prohibited Activities-Section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1) is amended by adding at the end the following:
(g) Prohibited Activities-Except as provided in subsection (h), it shall be unlawful for a registered public accounting firm (and any associated person of that firm, to the extent determined appropriate by the Commission) that performs for any issuer any audit required by this title or the rules of the Commission under this title or, beginning 180 days after the date of commencement of the operations of the Public Company Accounting Oversight Board established under section 101 of the Sarbanes-Oxley Act of 2002 (in this section referred to as the "Board"), the rules of the Board, to provide to that issuer, contemporaneously with the audit, any non-audit service, including-
(1) bookkeeping or other services related to the accounting records or financial statements of the audit client;
(2) financial information systems design and implementation;
(3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
(4) actuarial services;
(5) internal audit outsourcing services;
(6) management functions or human resources;
(7) broker or dealer, investment adviser, or investment banking services;
(8) legal services and expert services unrelated to the audit; and
(9) any other service that the Board determines, by regulation, is impermissible.
(h) Preapproval Required for Non-Audit Services-A registered public accounting firm may engage in any non-audit service, including tax services, that is not described in any of paragraphs (1) through (9) of subsection (g) for an audit client, only if the activity is approved in advance by the audit committee of the issuer, in accordance with subsection (i).
TITLE IV-Enhanced Financial Disclosures
Sec. 404. Management Assessment of Internal Controls
(a) RULES REQUIRED-The Commission shall prescribe rules requiring each annual report required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 [15 U.S.C. 78m or 78o(d)] to contain 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.
(b) INTERNAL CONTROL EVALUATION AND REPORTING-With respect to the internal control assessment required by subsection (a), each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement.
Required
a. The Sarbanes-Oxley Act refers to "the Commission" in several sections. To what Commission is the Sarbanes-Oxley Act referring?
b. Describe the responsibility of the Commission in relation to the "Board."
c. Describe the Board.
d. Describe the duties of the Board.
e. Who must register with the Board?
f. Describe the Board's responsibility as to the inspection of those registered with the Board.
g. Describe the responsibilities of the Board in relation to auditing standards.
h. Contrast the applicability of the Sarbanes-Oxley Act to domestic public accounting firms versus foreign public accounting firms.
i. Describe the recognition of accounting standards by the Commission as provided.
j. Comment on the funding for the:
1. Board.
2. Financial Accounting Standards Board.
k. Describe prohibited activities of the independent auditor. Can the independent auditor perform tax services for an audit client?
l. Describe management's responsibility in relation to internal controls.
m. Speculate on why Title IV, Section 404, "Management Assessment of Internal Controls," has received substantial criticism.