The Sarbanes-Oxley (SOX) rules significantly alter the disclosure function of public companies. They codify the SOX Act's substantial new reforms, obligations and penalties directly affecting the roles of the CFO, the audit committee and the public accounting firm serving the enterprise. The aim of the new rules is to ensure accurate, transparent disclosures are provided to investors. They utilize defined civil and criminal penalties to compel compliance.

We have summarized some of the more significant changes experienced by the CFO's office below and the additional disclosure or liability involved.

• The CFO's dialogue and interaction with the company's audit committee has been re-defined. The audit committee has been given substantial new obligations and authority by the Rules. The committee is now responsible for understanding and reviewing all material adjustments made to the company's financial statements by the auditors and why any gaap applied by the CFO differed from that preferred by the auditors. They are also tasked with resolving disagreements between management and the auditors on the interpretation and application of gaap
• The CFO is tasked with creating and implementing a disclosure controls architecture that must capture, process and disclose material financial and operating information to investors and make the same information known to executive officers. These controls must be evaluated quarterly by management, attested to annually by the auditors and the results disclosed in the company's periodic reports. The SEC recommends that a disclosure committee be established to consider materiality and timeliness and have it report to the company's CEO and CFO, or equivalents
• A corresponding obligation has been established for the CFO and CEO to certify by signature that the information being presented in the company's periodic reports fulfills the "fairly presents" mandate in the Act and does not contain materially false information, or omit material information. Under Section 906 of the Act, failure to abide by this standard can result in criminal fines and penalties up to $5 million and 20 years
• The CFO and CEO are subject to forfeiture of bonus, other incentive-based compensation and profits from sales of company securities when there is a material restatement of the financials because of "non-compliance as a result of "misconduct". These terms revolve around willful misapplication of gaap
• The SEC has adopted revised screening and review standards for company filings that consider new indicators such as a recent material restatement, stock price volatility and PE ratios, as a basis for review of enterprise disclosures. This rule will result in more frequent reviews of company filings and all companies will be reviewed at least once every three years. The new law provided considerable funding for new staff to fulfill this requirement
• Loans and extensions of credit to officers and directors are now prohibited
• A code of ethics for senior financial officers must be codified and disclosure of its adoption, or why none has been adopted, is required in the company's Form 10-K

This page is provided by Street Disclosure Corporation for informational and educational purposes only and is not intended and should not be construed as legal advice.