Sarbanes-Oxley Act

In 2002, the United States federal government, in an attempt to restore investor confidence in the US financial system, enacted the Sarbanes-Oxley Act of 2002 (SOX). This legislation helps protect the interests of shareholders from misleading corporate reporting and the potentially fraudulent acts of company managers. To help become and stay compliant with SOX requirements, organizations are leveraging contract management systems to effectively manage and report on their contractual relationships and activities.

What is the Sarbanes-Oxley Act?

The Sarbanes-Oxley Act of 2002 (SOX) establishes strict new rules and reporting requirements related to a wide range of questionable corporate practices that have been under recent scrutiny. 

Intended to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, SOX places much more focus and responsibility on the roles and responsibilities of public companies' senior management, in particular the chief executive officers (CEOs), chief financial officers (CFOs), boards of directors, audit committees, and independent auditors. 

The act also establishes stringent new financial reporting requirements along with the requirement for CEOs and CFOs to sign-off on these reports, taking personal responsibility for their accuracy and completeness.

What are the corporate impacts of the Sarbanes-Oxley Act?

A review of SOX shows that only a handful of sections, specifically 302, 401, 404, 409, 802 and 906, focus on corporate systems and accountability, and therefore warrant the most attention of companies working to become compliant.

Click here to download the White Paper: Contract Management Addresses the Sarbanes-Oxley Act of 2002.

What are the compliance deadlines?

The majority of US public companies must meet the financial reporting and certification mandates of the Sarbanes-Oxley Act for all year-end financial statements filed after June 15, 2004. However, smaller U.S. companies and foreign companies have until April 15, 2005. Given the potentially complex impact to the requirements on corporate systems these deadlines may be difficult to meet unless action is underway or initiated immediately.

Click here to learn more about Upside Software's Path to Compliance.

How can Upside Software help?

Upside Software provides the foundation for companies to become compliant with the Sarbanes-Oxley Act by providing the structure required to manage business relationships. Through effective and highly visible management of contracts and associated risk, compliance and performance, corporate management can properly assess and more ably assume responsibility for their operations.

Click here to see how Upside Software can help.

Important sections of the Sarbanes-Oxley Act

The Sarbanes-Oxley Act contains 11 titles but only four (III, IV, VIII and IX) address the systems and accountability of reporting companies. Within these four titles, sections 302, 401, 404, 409, 802 and 906 provide specific direction for companies working to become compliant. These sections, in summary, are:

302 – Corporate Responsibility for Financial Audits
The CEO and CFO must certify "the appropriateness of the financial statements and disclosures contained in the (annual) report, and that those financial statements and disclosures fairly present, in all material respects, the operations and financial condition of the issuer" and will be held personally liable for willful violations of this section. This section also places responsibility for accurate and effective internal controls squarely on the CEO and CFO.

401 – Disclosures in Periodic Reports
Section 401 indicates that each quarterly and annual financial report ‘shall disclose all material off-balance sheet transactions" and "other relationships" with "unconsolidated entities" that may have a material current or future effect on the financial condition of the company. 

404 – Management Assessment of Internal Business Controls
Each annual report must include an "internal control report” that certifies management’s responsibility for creating and maintaining internal controls and processes for financial reporting, and contains an assessment of the effectiveness of these internal controls and processes. 

409 – Real Time Issuer Disclosures
Section 409 indicates the requirement for companies to disclose information on material changes in their financial condition or operations on a “rapid or current basis.”

802 – Records and Retention
Companies must ensure their records are authentic, consistent and immutable, and that they have, and follow, appropriate records security and retention policies.

906 – Reporting must Comply with the Act
This section deals with the requirement of companies to ensure that all financial reporting, including annual and periodic reports, 10-K's, 10-Q's, etc., provide an accurate representation of the firm's financial position and that they conform and comply with the Act.