CHAPTER 7: ACCOUNTING, RECORDS, AND ASSOCIATED REGULATIONS
U.S. MANDATE: SARBANES-OXLEY ACT (SOX) The Sarbanes-Oxley Act (SOX), enacted in 2002, has had a global impact since businesses located outside the U.S. whose corporate office is located within the U.S. must comply. Some U.S. businesses also require all their global customers and suppliers to comply, which makes this law far-reaching. Furthermore, other countries have followed suit with similar legislation. Additionally, numerous states are looking into establishing similar regulations for private companies that are exempt from SOX. Congress passed Sarbanes-Oxley in order to implement changes in federal securities regulation, corporate governance, and the regulation of auditors. Many requirements under SOX still require more stringent attention within records-management programs for public companies. In response to business scandals, Sections 802 and 1102 of SOX expanded the reach of the obstruction of justice laws and substantially increased the corresponding criminal penalties, making it a criminal offense to destroy corporate documents in contemplation of a federal investigation or administration of any regulatory matter. SOX Mandates Independence of Audit Committee and Auditor The legislation mandates that members of the audit committee of the board of directors at a corporation be independent of the management of the corporation. To be independent, a director may not accept any consulting, advisory, or other compensatory fees from the company—other than the standard fees directors receive for service on the board and on board committees. The law also requires that the audit committee has the authority and funding to hire its own independent counsel and other advisors. The auditor must now report to the audit committee, not to management. These provisions mean that these independent board members will be under significantly less pressure from management to okay the wishes of management and that the auditors are not influenced by the corporation’s top executives. The audit committee and the auditors are now safe havens for accounting professionals within organizations to bring forward their concerns about suspicious accounting. This is a good example of segregation of duties. Outside Auditors Barred From Offering Many Services The law also prohibits auditors from offering certain non-audit services to audit clients. Maintaining the independence of auditors is in the best interests of AR managers, who may need an outsider to support their efforts to maintain honest and ethical practices. Code of Ethics Required for Financial Officers SOX legislation calls for corporations regulated by the SEC to adopt a code of ethics for senior financial officers. The code is applicable to a corporation’s “principal financial officer and controller or principal accounting officer, or persons performing similar functions.” The term “code of ethics” is defined as such standards as are reasonably necessary to promote:
Honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
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THE ACCOUNTS RECEIVABLE SPECIALIST CERTIFICATION PROGRAM E-TEXTBOOK
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