The Titles Of The Act
The SOX Act is divided into eleven titles that outline the major changes to financial reporting and investor protection:
The Public Company Accounting Oversight Board: Title I
This section of the law is mainly used to establish the rights of the Public Company Accounting Oversight Board (PCAOB). It lists the duties and responsibilities of the board in outlining compliance procedures, and other areas such as auditor registration.
Independent External Auditors: Title II
The second title outlines the guidelines for having an external auditor. It discusses how the external auditor should be approved, and how their findings should be reported. This section also states the necessity of companies to rotate their auditor, and only provide auditing services and nothing else.
Company Responsibility For Accurate Reporting: Title III
The eighth title in the SOX Act is used to ensure that the executive members are held responsible for the reports generated. In this title, chief executive officers have to view and approve the details of the finance report. This section of the act further describes the interaction between an external auditor and the company’s audit committee.
Complete Disclosure of Financial Records: Title IV
Before Title IV was introduced, public companies were not required to have internal measures in place to comply with reporting accuracy. Not only do these controls have to be in place now, but audits also have to be completed on these controls.
Securities Analyst Code of Conduct: Title V
This is fairly straightforward, and it is used to protect investors by outlining the behavior of securities analysts, especially when a conflict of interest arises.
Commission Resources and Authority: Title VI
Title six also used to protect investors by establishing the Securities and Exchange Commission as the governing body to administer financial standards and policies in the industry. It also lists the responsibilities of brokers and dealers and disciplinary steps if they fail to comply with the standards.
SEC Reports: Title VII
This section of the Act gives guidelines on the reports of the Securities and Exchange Commission. These reports would outline research completed by the SEC on various subjects to protect the investor.
Corporate and Criminal Fraud Act of 2002: Title VIII
One of the most important sections of the SOX Act is contained in title eight. This title is well known because it is now used to provide safety for
“whistle blowers" who report their company. In a way that clearly outlines illegal practices for corporate fraud, the penalties associating with various fraudulent practices are contained here.
Increased Penalty For White Collar Crime: Title IX
Before the recent financial scandals, it was a general idea that “white collar crime" was too lenient for the amount of money companies were defrauded. Therefore, this area explicitly outlines the behavior associated with “white collar crime" and the sentences for these have been increased.
CEO Tax Return Accountability: Title X
This area of the Act is fairly straightforward and simple, and it requires all CEO’s to review and sign the tax return generated by the company.
Corporate Fraud Accountability: Title XI
The last title is mainly concerned with reiterating that corporate fraud is a criminal offence and more accountability is necessary. It also specifies the various disciplinary action will be taken, such as freezing accounts.