Name: Mahnoor Abid

Class: BSAF IV B
Roll # 180766
Submitted to: Sir Atif Bilal
 SURBANES OXLEY ACT 2002

History:
The Securities Act of 1934 managed protections until 2002. It expected
organizations to distribute an outline about any traded on an open market stocks it
gave. The company and its speculation bank were lawfully answerable for coming
clean. That included reviewed budget summaries. In spite of the fact that the
partnerships were lawfully dependable, the CEOs were most certainly not. Thus, it
was hard to arraign them. The Sarbanes-Oxley Act was passed by Congress to
check far reaching falseness in corporate budgetary reports, outrages that shook the
mid 2000s. The Act presently considers CEOs answerable for their organization's
budget reports. Representatives are given assurance. Progressively stringent
evaluating benchmarks are followed. On December 2, 2001, the Enron
Corporation, a highly-respected and rapidly growing energy-trading company filed
for bankruptcy. It had inflated its earnings by nearly $600 million in the 1994—
2001 period. This had become known less than a month before. Enron, with assets
of $62.8 billion, became the largest bankruptcy in U.S. history. Its stock closed at
72 cents on December 2. It had been over $75 a share one year earlier. Investors
lost billions and employees lost their life savings. Exactly 241 days later, on July
30, 2002, the President signed into law the Public Company Accounting Reform
and Investor Protection Act of 2002. The act's two chief sponsors were Senator
Paul Sarbanes (D-MD) and Representative Michael G. Oxley (R-OH). The
legislation thus carried the short title of Sarbanes-Oxley Act of 2002, subsequently
abbreviated as SOX. In the opinion of most observers of securities legislation,
SOX is viewed as the most important new law enacted since the passage of the
Securities and Exchange Act of 1934.

Main Clauses of Surbanes Oxley Act:

The SOX Act consists of eleven elements (or titles), but below are the most
important sections of the act:

Section 302

Financial reports and statements must certify that:

 The documents have been reviewed by signing officers and passed internal
controls within the last 90 days.

 The documents are free of untrue statements or misleading omissions.

 The documents truthfully represent the company’s financial health and

position.

 The documents must be accompanied by a list of all deficiencies or changes

in internal controls and information on any fraud involving company
employees.

Section 401

Financial statements are required to be accurate. Financial statements should also

represent any off-balance liabilities, transactions or obligations.

Section 404

Companies must publish a detailed statement in their annual reports explaining the
structure of internal controls used. Information must also be made available
regarding the procedures used for financial reporting. The statement should also
assess the effectiveness of the internal controls and reporting procedures.

The accounting firm auditing the statements must also assess the internal controls
and reporting procedures as part of the audit process.

Section 409

Companies are required to urgently disclose drastic changes in their financial

position or operations including acquisitions, divestments and major resignations.
The changes are to be presented in clear, unambiguous terms.
Section 802

Section 802 outlines the following penalties:

 Any company official found guilty of concealing, destroying or altering

documents with intent to disrupt an investigation could face up to 20 years in
prison and applicable fines.

 Any accountant who knowingly aids company officials to destroy, alter or

falsify financial statements could face up to 10 years in prison.

Changes in corporate governance after SOX:

After a delayed time of corporate embarrassments (e.g., Enron and WorldCom) in
the United States from 2000 to 2002, the Sarbanes-Oxley Act (SOX) was instituted
in July 2002 to reestablish speculators' trust in the monetary markets and close
escape clauses that permitted open organizations to swindle financial specialists.
The demonstration profoundly affected corporate administration in the US. The
Sarbanes-Oxley Act requires open organizations to reinforce review boards of
trustees, perform interior controls tests, make executives and officials by and by
subject for the precision of budget summaries, and fortify exposure. The Sarbanes-
Oxley Act likewise builds up stricter criminal punishments for protections
misrepresentation and changes how open bookkeeping firms work.

Pros of Surbanes Oxley Act:

1. It unveils essential data to investors:
Fundamentally, the demonstration was made so as to secure investors. Take
Enron, for instance. It was perhaps the greatest organization on the planet,
and because of its obscure bookkeeping rehearses, its breakdown influenced
the lives of a considerable lot of its workers and caused a significant mix on
Wall Street when they were discovered. Each organization endures monetary
misfortunes, yet Enron's CEO Jeffrey Skilling concealed these misfortunes
and different tasks. The strategy instituted was called mark-to-advertise
 bookkeeping which is utilized in protections exchanging where the genuine
estimation of the security right now is resolved. This can work in
protections, however self-destruct for different sorts of organizations. What
Enron did was that they would construct an advantage like a force plant, for
instance, and guarantee the anticipated benefit on its books regardless of
whether they haven't made a solitary penny of off it. At the point when
income from the plant did show up and it was not exactly the anticipated
sum, as opposed to assume the misfortune, Enron would move the resources
for an under the table company bringing about the misfortune being
unreported. At the end of the day, the misfortune wouldn't hurt the primary
concern of the organization. This strategy had the option to deceive
investors, yet given that the organization is currently ancient, they were
discovered and disciplines were given. To keep away from this from
happening once more, organizations are currently required to unveil data
about their hazard profiles, resources, obligations and their responsibilities.
Along these lines, investors have data indispensable to settle on a steady
choice or contrast between open organizations with ensure they choose
contributing. By doing this, investor certainty is expanded which at that
point brings about capital streaming into the business sectors.

2. It underscores the requirement for inward controls:

In Section 404 of the demonstration, the executives is required to test inward
controls on a quarterly premise and afterward record a report on whether
those controls are adequate and powerful. While it's viewed as an advantage,
this is unquestionably the most costly to consent to. The segment was set up
to take out administration abrogates that happened in cases like that of
Enron. With interior control testing, it is guaranteed that exchanges were
executed the manner in which they should. Inside controls likewise ensure
that governing rules are set up to get any variations from the norm.

Cons of Surbanes Oxley Act:

1. It is costly:
One of the biggest criticisms of Act is that the rules are the same for both
large multi-national companies and small public companies. In particular,
Section 404 hits publicly funded corporations harder as they need to have
the resources in place to execute what the section demands. Bigger
corporations have all the resources they need, but smaller companies just
don’t have that much. This has been remedied somewhat though since the
law was passed where burden has been lifted ever so slightly from small
corporations. But despite that, there is still the issue of cost just to remain
compliant to what the act states.

2. It results in increased audit fees:

Since 2002, audit fees have increases substantially as a result of auditors
being forced to be more accountable for the audit reports on their clients. As
the liability of auditors increase, so does the audit fee. These added expenses
can take a toll on the profit of a company.