NAME: Neha Mundra

CLASS: MBA FT
SEM 4 ‘B’
ROLL NO.: 68082
DATE: 13 MAY 2021
INTERNAL 2

Q.2) What is Sarbanes Oxley Act? What are the various aspects of business does a
business signatory in India or another geography is asked to validate for SoX compliance
for a US based multinational?

Ans. Sarbanes – Oxley Act of 2002 also known as “Public Company Accounting Reform and
Investor Protection Act” in the Senate and “Corporate and Auditing Accountability and
Responsibility Act” in the House. While it is commonly called as Sarbanes-Oxley, Sarbox or
SOX.
Sarbanes -Oxley Act of 2002, provides for:
 Improvement in quality & transparency in financial reporting.
 Independent audit & accounting services for the listed companies.
 Creation of Public Accounting Oversight Board.
 Increased corporate responsibility.
It highlighted various important issues like:
 Ensuring effective corporate governance in spirit rather than in letter.
 System of internal control, checks & balances.
 Functioning of Audit Committees.
 Conflict of interest at all levels i.e. regulators, management & auditors
 Making accounting & auditing effective.
 Effective compliance & auditing.
 Effective compliance of Accounting Standards.
SOX 2002-The LAW
Section 302 - CEOs & CFOs to sign off on the validity & accuracy of their companies’ financial
numbers & to certify the controls & procedures behind their financial reports.
Section 404 - Organizations must ensure that the audit process behind their financial reporting is
not only comprehensive & accurate, but that they can also meet strict quarterly timeframes for
reporting on an ongoing basis.
Section 409 - Issuers are required to disclose to the public, on an urgent basis, information on
material changes in their financial condition or operations.
Section 802 - Imposes penalties of fines and/or up to 20 years imprisonment for altering,
destroying, mutilating, concealing, falsifying records, documents or tangible objects with the
intent to obstruct, impede or influence a legal investigation.

Benefits of Sarbanes Oxley Act:-

To the Investors
 Companies have to reveal poor financial reporting practices that should be stopped.
 More trust in the financial statements of any company before deciding on any
investments.
To the Companies
 Benefits from consolidated data store.
 Benefits from ability to find data & create reports – business intelligence.
 Side benefit: discovery of internal fraud & theft through tighter controls
 Result: positive shareholder value

Various aspects of business does a business signatory in India or another geography is

asked to validate for SoX compliance for a US based multinational:
All publicly-traded companies, wholly-owned subsidiaries, and foreign companies that are
publicly traded and do business in the United States must comply with SOX. SOX also applies
accounting firms that audit public companies. 

 The New Act provides that foreign public accounting firms that prepares an audit report
with respect to the listed companies in US shall also be subject to same set of standards
as prescribed in respect of US firms.

 In case some components of the company has been audited by the foreign firm, registered
public accounting firms, the working papers of such foreign firms shall also be made
available to the firm & the Board.
 In India
With the coming of SOX in U.S., India also took new corporate governance norms under
Clause 49 of Listing Agreement which came into effect from 31 December 2005 and is
mandatory for all listed companies. Some of the important provisions are as follows-

1. As per the Clause 49, it is mandatory for a company with Executive Chairman, to have

50% independent directors on Board. If the company has no Executive Chairman, 1/3 rd of the

directors should be independent.

2. CEO/CFO’s are required to assess internal controls and take corrective measures to check

the deficiencies. They are also required to certify the Financial Statements.

3. All the companies are required to submit quarterly Compliance Reports at Stock

Exchanges.

4. Establishment of an Audit Committee.

5. Whistle Blower Policy is to be set out to provide security to those who retaliate against

wrong doers.

Thus, SOX is an essential law which has brought discipline in financial reporting process.

The transparency brought by this act is boosting investor’s confidence that further helps

building a strong capital market in the economy.