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Thank you for inviting me to testify on behalf of the Securities and Exchange Commission concerning the impact of the Sarbanes-Oxley Act of I appreciate the opportunity to discuss this important matter with you.
Introduction A little over two years ago, when I became Chairman of the Commission, the headlines were still dominated by reports of financial fraud, lapses in audit and corporate governance responsibilities, and intentional manipulation of accounting rules.
Congress had acted swiftly in the face of this breakdown by enacting the Sarbanes-Oxley Act, which called for the most significant reforms affecting our capital markets since the Securities Exchange Act of Since its enactment in the summer ofthe Act has effected dramatic change across corporate America and beyond, and is helping to re-establish investor confidence in the integrity of corporate disclosures and financial reporting.
The goals of the Sarbanes-Oxley Act are far-reaching, and aim to restore investor confidence in and assure the integrity of our markets.
The Act affects every reporting company, both domestic and foreign, as well as their officers and directors and other key participants in our capital markets. The principal objectives addressed in the Act can be grouped into the following themes: The Act called on the Commission to undertake nearly 20 rulemakings and studies.
The Act also set ambitious deadlines for the Commission, and in most cases required us to implement the final rules speedily. Just as the Sarbanes-Oxley Act was a landmark piece of legislation for Congress, the successful implementation of that legislation will be seen as a watershed in the history of the Commission.
Among the many benefits have been CEO and CFO certifications, accelerated electronic insider transaction filings, independent audit committees with increased responsibilities, and strengthened internal controls.
Collectively, these accomplishments should have an enormous positive impact on the management and governance of U. In particular, the internal control reporting and auditing requirements, which companies are dealing with for the first time, have required significant outlays of time and expense.
We expect that the short-term costs to improve internal control over financial reporting will over the long-term result in structurally sounder corporate practices and more reliable financial reporting.
With these critical goals now firmly in view, calls to roll back or weaken Sarbanes-Oxley generally as a result of concern over the costs of internal control reporting are, in my judgment, unjustified.
At the same time, the Commission and the PCAOB must be sensitive to the need to recalibrate and adjust our rules and guidance to avoid unnecessary costs or unintended consequences. To this end, the Commission and the PCAOB will remain committed to the implementation of the Act in the most efficient and effective way.
I would like to review a few specific accomplishments. The Commission has taken the actions directed by the Act in this area and, when appropriate, pursued additional measures with the goal of restoring public confidence in the independence and performance of auditors of public company financial statements.
Adoption of new rules related to auditor independence; Adoption of new rules related to improper influence on auditors; Adoption of new rules related to retention of records relevant to audits and review of financial statements; A study on principles-based accounting standards; Recognition of the Financial Accounting Standards Board as an accounting standard-setting body under the Act; and Oversight of the PCAOB.
Based on the information we have received, we believe the new rules have begun to have a beneficial effect in strengthening the integrity of the independent audit. We also have seen that audit committees are taking their responsibilities seriously and that they are much more sensitive to auditor independence issues.
In addition to coordinating with us on major projects related to auditing matters, the PCAOB has agreed to prepare a long-range strategic plan for its operations and budget as well as a self-assessment of the internal controls for its operations and budget.
Strengthening the Enforcement of the Federal Securities Laws The Act also has helped the Commission to restore investor confidence in the capital markets by strengthening enforcement of the federal securities laws.
One of the toughest challenges facing the Commission has been finding, recovering, preserving and, when appropriate, returning funds to injured investors. The Fair Funds provision authorizes the Commission to take civil penalties collected in enforcement cases and add them to disgorgement funds for the benefit of victims of securities law violations.
Before the Act, by law, all civil penalties were paid into the U. Now, the Commission has authority, in certain circumstances, to use civil penalties to help compensate injured investors. There is still room for improvement, however. First, Fair Funds authority is limited to cases in which disgorgement is ordered against the same individual against whom we are imposing a penalty.
There are cases, however, in which there is no ill-gotten gain — or disgorgement — to be obtained from a particular individual but against whom it is appropriate to impose a penalty.
In these cases, under the existing Fair Funds provision, we do not have authority to use the civil penalty to compensate injured investors. In reports pursuant to Sections c and of the Act, we recommended several amendments to the current law that we believe will assist our collection program, strengthen our enforcement efforts generally, and provide more compensation for injured investors.
We appreciate your extraordinary efforts and support and are hopeful that these proposals will eventually become law. As we continue to use the Fair Funds provision, we have faced some challenges in administering the program — and doing it fairly, expeditiously, efficiently, and with the greatest possible return to injured investors.
It is a learning process for us as well, and over the past year, we have taken a number of steps to increase the amounts returned to harmed investors including: The other provision I would like to highlight is Sectionwhich allows the Commission to seek a temporary order to escrow extraordinary payments by an issuer to its directors, officers, partners, controlling persons, agents, or employees.
Whereas, previously, top executives potentially had the ability to remove and dissipate company assets while an investigation was ongoing, the Act, under appropriate circumstances, allows us to preserve the status quo while our enforcement staff concludes its investigation and gathers evidence to determine whether such payments are warranted.
It ensures that recovery by way of disgorgement, etc. Needless to say, Section will continue to be a valuable and powerful tool. The provisions of the Act that the Commission has implemented addressing this theme include: Certification by CEOs and CFOs of company reports; Required disclosure regarding codes of ethics for CEOs and senior financial officers; Electronic filing within two days after securities transactions by insiders; and Prohibition on trading by insiders during pension fund blackouts.
Among these, the certification provisions have perhaps had the greatest immediate impact.Jul 22, · Sarbanes-Oxley developed the Public Company Accounting Oversight Board, a private, nonprofit corporation, to ensure that financial statements are audited according to independent standards.
The Sarbanes–Oxley Act of (Pub.L. –, material weaknesses in its internal control over financial reporting when it ignores an employee's concerns that could impact the company's SEC filings.
Legal challenges. A lawsuit (Free Enterprise Fund v. Mar 10, · Impact Partners BrandVoice The Costs And Benefits Of Sarbanes-Oxley. the landmark Sarbanes-Oxley Act of was born into a climate .
Sarbanes -Oxley Act of , will be responsible for further promoting the significance of security to corporate executives. When drafted, the writers of the Act did not have IT. The Sarbanes-Oxley Act of , officially the U.S.
Public Company Accounting Reform and Investor Protection Act of , also referred to as SOA or SOX, is having an impact on organizations’ IT, especially security systems, practices and controls.
Mar 10, · Impact Partners BrandVoice The Costs And Benefits Of Sarbanes-Oxley. the landmark Sarbanes-Oxley Act of was born into a climate still reeling from the .