What on Earth Is the Sarbanes Oxley Act?

If you don’t know what this Act does, it’s time your business did some research. Businesses need to be in compliance with this Act.

Many businesses wonder whether or not they need to be aware of or even comply with the Sarbanes-Oxley Act of 2002. There are advocates for it and against it, largely because some people feel it’s a paper chase without teeth, but by and large, it is considered to be one of the most far-reaching securities legislation ever passed.

Its effect in a nutshell, was to have every company that files reports with the Securities and Exchange Commission (SEC) have increased corporate responsibilities and obligation when it came to dealing with money. Looking at the Sarbanes-Oxley Act of 2002 from another point of view, it becomes clear that non-compliance will significantly penalize company boards. Generally speaking, messing with this Act is never a good idea, which is why legal counsel with extensive experience in this area is a smart business move to ensure compliance.

Part of the Act, brought into effect in 2002, created the Public Company Accounting Oversight Board (PCAOB). Its raison d’être was to oversee auditing public companies. They’re almost as powerful as the IRA and can inspect, investigate and enforce compliance from any company they have in their sights. The PCAOB sets rules for audit reports as well as standards to be adhered to for accounting, and it is mandatory for all companies to be registered with them.

Any and all financial transactions that go to the bottom line of a company must be disclosed according to this Act and all pertinent details must be precise as to time, date, place, reason and where the money went when it was received.

There are to be no personal loans to executives or company directors and all annual reports need to include a statement that specifically says management is responsible for the internal company control structure and financial reports. Woe betides the person or persons who alters, destroys, hides or falsifies records or documents. If found out and prosecuted under the auspices of the Sarbanes-Oxley Act, those found in breach usually face hefty fines and up to 20 years in jail.

Even attorneys and their role of representing public companies before the Securities Exchange Commission are covered in this act. In fact, a section of the Sarbanes-Oxley law requires attorneys to report securities violations to the CEO.

Many of you reading this information will know the Sarbanes-Oxley Act of 2002 for a different reason; the protection of whistleblowers. One section of the act specifically states that any employee who reports an unlawful act is protected. The misconduct or illegal actions may be those of the employer, superior or a colleague.

Whistleblowers have a valuable role to play in keeping companies on the straight and narrow ethical path. They offer the police truthful inside information and run the risk of being the brunt of hostility in the workplace. At one time, employers could retaliate and fire a whistleblower, punish them by other means, such as demoting them or cutting their salary. This is now illegal and thanks to a whistleblower, the company is stopped in its tracks from continuing with their illegal actions. Any employer who tries to retaliate is subject to up to ten years in prison and a significant fine.

Seth Wilburn writes for the Gomez Law Group, a Dallas employment lawyer and Dallas business lawyer. To learn more, visit Gomezlawyers.com.

Tags: Dallas business attorney, Dallas business lawyer, Dallas employment attorney, Dallas employment lawyer

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