Sarbanes Law - Oxley

The law applies to all issuers ("issuers") - for all companies whose securities are registered with the US Securities and Exchange Commission (SEC) - regardless of the place of registration and the company. That is, regardless of whether the securities are traded on the New York Stock Exchange , NASDAQ , or on any other American stock exchange, whether they are registered as debt instruments in the USA (with or without listing), whether they belong to a company undergoing registration for issuing securities in the United States .

In accordance with the Law, for joint stock companies of the open type:

• a new regime of control and regulation of financial activities is being created;
• Significant changes are taking place in the area of ​​management and disclosure requirements

The law, named after the creators — Senator Paul Sarbanes (Democratic Party, Maryland) and Rep. Michael Oxley (Republican Party, Ohio ) - consists of 11 sections. The issues of independence of auditors, corporate responsibility, full financial transparency, conflict of interest, corporate financial reporting, etc.

According to the provisions of the Law, an Audit Committee must be established in each public company.

Code of Corporate Conduct

The Code of Corporate Conduct (Article 406) is a set of standards that are designed to counter abuse and promote a number of principles for fair business. Each issuer in its periodic reports should indicate that it has adopted a Corporate Code of Conduct for senior financial employees of the company. It is intended to expand this provision to another guide. If you change the provisions of the Code, you must immediately report it.

All reports to the U.S. Securities and Stock Market Commission are signed by the Executive Director (CEO) and CFO ( CFO)

Section 906 of the Law provides for the signing of all periodic reports by the issuer to the Commission, including financial statements. The directors must confirm that the submitted reports “fully comply” with the SEC requirements, and the information presented in them “fairly reflects in all material respects the financial condition and results of the issuer”. The same article provides for criminal liability for violation of the law - a fine of 1 to 5 million dollars and imprisonment of 10 to 20 years.

Prohibition of the provision of loans to directors and officers of the company

Section 402 of the Act forbids American and foreign companies operating in the US stock market (as well as registering with the SEC for initial public offering) the majority of personal loans (direct loans) to directors and officers of the company, except for individual consumer and housing loans that are American banks and brokers (dealers) may, under certain conditions, provide their employees. (“Advance payments for doing business” are considered acceptable as they are not a “personal loan”)

Deprivation of directors and company officers of the right to incentive fees or securities

In the event that a company is forced to submit a repeated financial report due to “a significant discrepancy of the issuer to any of the financial reporting requirements resulting from a misconduct”, its Chief Executive Officer (CEO), as well as the Chief Financial Officer (CFO), are deprived of the right to incentive remuneration * or securities, as well as income from the sale of the issuer's securities - within 12 months from the date of publication of the repeated financial report (Article 304 of the Law). In the event that the indicated officials for the period of 12 months after the publication or submission of the document to the SEC have already received the remuneration, they are obliged to return it to the issuer.

Undue influence on auditors

It is forbidden for any employee or director (or any other person acting on their instructions) to take any actions to influence by deceiving, forcing, manipulating or misleading auditors in order to obtain audit financial statements that have significant distortions of reality. (Article 303)

Whistleblower Protection

Corporate whistle blowers (employees who report deficiencies in the company) receive substantial protection from retaliation by company management. (Articles 806, 1107)

Reduce reporting time

In accordance with Article 403 of the law, directors, officers of the company, as well as shareholders holding more than 10% of the shares, are required to submit a report on all transactions with shares (Form 4) on the second business day after the completion of these operations. These reports (starting on August 30, 2003) should be submitted to the SEC in electronic form and posted on the company's website.

Accounting Supervision and Auditing

In accordance with the Law, a “Supervisory Board for the Financial Reporting of Public Companies” was established (Articles 101-109)

A New Role for Auditors and Audit Committees

• Auditors report and report their results not to company management, but to the Audit Committee
• The audit committee must pre-approve all services (audit and non-audit) that are provided by the audit company.
• The auditor is obliged to report to the Audit Committee all new information:

the main accounting provisions that will be used during the audit, various options for evaluating GAAP financial information that were discussed by the company’s management, differences in opinions on financial accounting that were revealed between the auditor and the company’s management, as well as all other important points of the auditors ’communication with the management

• The lead audit partner and its opinion preparation partner should be replaced for each public company after 5 years
• An accounting firm cannot audit for a public company if one of its managers (CEO, CFO, chief accountant) worked in the firm and audited the company over the past year

Confirmation of correctness on the part of company management cannot be instantaneous and requires considerable efforts on the part of the entire company, and not just the units responsible for the preparation of financial statements.

In general, do not take SOX as a project. This is a process that requires "tidying up" all areas of the company that are relevant to the preparation of financial statements.

• Compliance Challenges for Foreign Private Issuers - Deloitte & Touché Analytical Review of Applicability of the Law for Foreign Issuers
• Sarbanes Law Text - Oxley