The Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investory Protection Act of 2002, is a federal law enacted to bolster reformation of American business practices. The Act contains 11 sections and creates enhanced standards for all publically held companies within the United States. These sections are described below:

1. Public Company Accounting Oversight Board (PCAOB)
   • Title I consists of nine sections and establishes the Public Company Accounting Oversight Board , to provide independent oversight of public accounting firms providing audit services ("auditors"). It also creates a central oversight board tasked with registering auditors, defining the specific processes and procedures for compliance audits, inspecting and policing conduct and quality control, and enforcing compliance with the specific mandates of SOX.
2. Auditor Independence
   • Title II consists of nine sections, establishes standards for external auditor independence, to limit conflicts of interest. It also addresses new auditor approval requirements, audit partner rotation policy, conflict of interest issues and auditor reporting requirements. Section 201 of this title restricts auditing companies from doing other kinds of business apart from auditing with the same clients.
3. Corporate Responsibility
   • Title III consists of eight sections and mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports. It enumerates specific limits on the behaviors of corporate officers and describes specific forfeitures of benefits and civil penalties for non-compliance. For example, Section 302 implies that the company board (Chief Executive Officer, Chief Financial Officer) should certify and approve the integrity of their company financial reports quarterly in order to establish accountability.
4. Enhanced Financial Disclosures
   • Title IV consists of nine sections. It describes enhanced reporting requirements for financial transactions, including off-balance-sheet transactions, pro-forma figures and stock transactions of corporate officers. It requires internal controls for assuring the accuracy of financial reports and disclosures, and mandates both audits and reports on those controls. It also requires timely reporting of material changes in financial condition and specific enhanced reviews by the SEC or its agents of corporate reports.
5. Analyst Conflicts of Interest
   • Title V consists of only one section, which includes measures designed to help restore investor confidence in the reporting of securities analysts. It defines the codes of conduct for securities analysts and requires disclosure of knowable conflicts of interest.
6. Commission Resources and Authority
   • Title VI consists of four sections and defines practices to restore investor confidence in securities analysts. It also defines the SEC’s authority to censure or bar securities professionals from practice and defines conditions under which a person can be barred from practicing as a broker, adviser or dealer.
7. Studies and Reports
   • Title VII consists of five sections and are concerned with conducting research for enforcing actions against violations by the SEC registrants (companies) and auditors. Studies and reports include the effects of consolidation of public accounting firms, the role of credit rating agencies in the operation of securities markets, securities violations and enforcement actions, and whether investment banks assisted Enron, Global Crossing and others to manipulate earnings and obfuscate true financial conditions.
8. Corporate and Criminal Fraud Accountability
   • Title VIII consists of seven sections and it also referred to as the “Corporate and Criminal Fraud Act of 2002â€. It describes specific criminal penalties for fraud by manipulation, destruction or alteration of financial records or other interference with investigations, while providing certain protections for whistle-blowers.
9. White Collar Crime Penalty Enhancement
   • Title IX consists of two sections. This section is also called the “White Collar Crime Penalty Enhancement Act of 2002.†This section increases the criminal penalties associated with white-collar crimes and conspiracies. It recommends stronger sentencing guidelines and specifically adds failure to certify corporate financial reports as a criminal offense.
10. Corporate Tax Returns
    • Title X consists of one section. Section 1001 states that the Chief Executive Officer should sign the company tax return.
11. Corporate Fraud Accountability
    • Title XI consists of seven sections. Section 1101 recommends a name for this title as “Corporate Fraud Accountability Act of 2002â€. It identifies corporate fraud and records tampering as criminal offenses and joins those offenses to specific penalties. It also revises sentencing guidelines and strengthens their penalties. This enables the SEC to temporarily freeze large or unusual payments.

At Midwest Audit, we follow the approved auditing standards of the Public Company Accounting Oversight Board. With our 30 years of experience in the industry, we are well-versed with the rules and regulations that public companies must abide by. Our strict criteria for compliance ensures that you are meeting your legal responsibilities. Our guidelines include:

• Assess both the design and operating effectiveness of selected internal controls related to significant accounts and relevant assertions, in the context of material misstatement risks
• Understand the flow of transactions, including IT aspects, sufficient enough to identify points at which a misstatement could arise
• Evaluate company-level (entity-level) controls, which correspond to the components of the COSO framework
• Perform a fraud risk assessment
• Evaluate controls designed to prevent or detect fraud, including management override of controls
• Evaluate controls over the period-end financial reporting process
• Scale the assessment based on the size and complexity of the company
• Rely on management's work based on factors such as competency, objectivity, and risk
• The auditor is allowed to rely on knowledge from prior audits
• Evaluate controls over the safeguarding of assets
• Conclude on the adequacy of internal control over financial reporting.

With over 30 years of industry experience, we are your SOX compliance professionals. We diligently work to ensure that your financial integrity remains secure. Count on us to get the job done professionally and correctly.

Contact us today to learn how we can make a difference!