Key Provisions of the Sarbanes-Oxley Act of 2002

Paul F. Wessell
Public Law No. 107-204

AUDITS AND AUDITORS

1. Establishes Public Company Accounting Oversight Board

2. Mandates rotation of lead audit partner and reviewing audit partner at least every five years

3. Prohibits auditing firm that provides auditing services for an “issuer” from performing specified non-audit services and requires Audit Committee approval of non-audit services not expressly forbidden (effective 180 days after the Board becomes operational)

4. Prohibits an audit firm from providing audit services to a public company if any member of senior management of the issuer had been associated with the auditing firm for at least one year

5. Adopts Public Company Audit Committee Standards


FINANCIAL REPORTING

1. Immediately effective requirement for CEO and CFO to certify annual and quarterly reports, subject to criminal and fines and imprisonment

2. Directs SEC to adopt an expanded CEO and CFO certification requirement rule for annual and quarterly reports within 30 days (this is in addition to #1)

3. Requires CEO and CFO to forfeit bonuses, compensation and any stock sale profits if a restatement of financial statements is required because of material noncompliance of the issuer, as a result of misconduct, with any financial reporting requirement under the securities laws

4. SEC may bar officers and directors if “unfit to serve” (lowers standard from “substantially unfit”)

5. Prohibits director or executive officer trading during blackout periods and imposes strict liability for any trading profits; amends ERISA regarding blackout periods (amendments effective in 180 days)

6. Prohibits personal loans (including extensions and renewals) to executives

7. Reduces Section 16 securities transaction reporting periods to 2 business days unless SEC adopts another rule because it determines 2-day period is not feasible in any case - previously 10 days after the end of the month (effective in 30 days)

8. Enhanced SEC review of public company’s filings (at least once every 3 years)

9. Mandates “real time” disclosures of such additional information concerning material changes in financial condition or operations, in plan English, as the SEC determines, by rule, is necessary or useful for protection of investors and the public interest


MANDATES ADDITIONAL SEC RULES DEALING WITH:

OTHER CHANGES MANDATES STUDIES ON:

1. Adoption of a principles-based accounting system for U.S. (SEC)

2. Audit firm rotation (GAO)

3. Off-Balance Sheet transactions (SEC)

4. Consolidation in the accounting industry (GAO)

5. Credit rating agencies (SEC)

6. Violation by securities professionals (SEC)

7. Restatement of financial statements (SEC)

8. Investment banks and financial advisers roles in earnings manipulation (GAO)

9. Civil penalties and disgagement funds for relief of investors (SEC)

For more information concerning the Sarbanes-Oxley Act of 2002 and its impact on your business, please contact Charles J. Ferry, Dean H. Dusinberre, or Paul F. Wessell at (717) 233-5731.

August 2, 2002                   

The information contained in this article is provided for general informational purposes only and should not be construed as legal advice. It is a summary only and may not be complete. Making this article available does not create nor constitute any attorney-client relationship.