Due to the financial scandals and the effects to stakeholders of large corporations like Enron and WorldCom, the U.S. Senate and House of Representative enacted the Sarbanes-Oxley Act in July 2002. The bill set the standards for ethical corporate governance for the external reporting of financial statements. This article looks at Titles V, VI and VII of the bill and its affects on corporate business ethics.
Title V – Analyst Conflicts of Interest and the Sarbanes-Oxley Act
This part of the bill was designed to boost investor confidence in the reporting by security analyst. Title V contains only a single section dealing with rules regarding security analysts conflicts of interest and their conduct as it pertains to the issuer of external financial reporting.
For example, if a security analyst has received compensation and/or has debt or investment equity to the issuer of the external report, this type of conflict of interest must be disclosed. This title of the Sarbanes-Oxley Act covers both analyst protection as well as disclosure of any conflicts.
Title VI – Commission Resources and Authority of the Sarbanes-Oxley Act
Similar to Title V to boost investor confidence by security analyst reporting, Title VI is designed to boost confidence in the abilities of security analysts. This title also covers the Security and Exchange Commissions (SEC) authority to censure any person who does not meet specific requirements. Title VI consists of the following four sections.
- Section 601 – Authorization of appropriations
- Section 602 - Appearance and practice before the commission
- Section 603 – Federal court authority to impose penny stock bars
- Section 604 – Qualifications of associated persons of brokers and dealers
Title VII – Studies and Reports and the Sarbanes-Oxley Act
Title VII of the Sarbanes-Oxley Act covers specific studies of firms that have an effect on corporate governance. This portion of the bill includes studies and reports the findings of public accounting firms, credit rating agencies and investment banks. Title VII also includes studies of enforcement actions, violations and violators of unethical external financial reporting. There are a total of five sections within this title.
In total there are eleven separate titles within the Sarbanes-Oxley Act. Each title of the act was designed to instill ethical corporate governance and boost investor confidence in U.S. public corporations. Titles I through IV are covered in a separate article. Hopefully with enactment of the Sarbanes-Oxley Act, the corporate scandals of the early 21st century will be a thing of the past.
Source:
sarbanes-oxley.com
James Clausen - Clausen received a Bachelors Degree in Business Administration in Automotive Management and Marketing at Northwood University, graduating ...
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