The securities laws of the United States -- as interpreted and enforced by the Securities and Exchange Commission (SEC) -- imposes many filing and disclosure requirements on companies listed on public exchanges in the U.S. Many of these filing and disclosure requirements come from the Sarbanes-Oxley Act. Such requirements drive significant compliance expenses for publicly-traded companies. Working with a lawyer on Sarbanes-Oxley requirements can help ensure that your company is compliant -- and thus avoids expensive civil and criminal liabilities related to non-compliance. Priori can connect you with an experienced securities lawyer who can help your company understand your obligations and stay compliant.
Understanding the Sarbanes-Oxley Act
The Sarbanes-Oxley Act, also referred to as Sarbanes-Oxley, Sarb-Ox or SOX, was passed in 2002 in response to several major corporate accounting scandals. SOX was passed with the intention of protecting investors from possible fraudulent corporate accounting activities. Sarbanes-Oxley applies to all publicly-traded companies in the United States and foreign entities listed on U.S. exchanges. Through SOX, Congress overhauled and strengthened required corporate financial disclosures and regulatory standards meant to prevent and prosecute accounting fraud. SOX compliance is now among the most critical securities regulations for publicly-traded companies in the US.
Sarbanes-Oxley covers a wide range of corporate accounting and reporting requirements and standards, ranging from auditor independence to financial disclosure requirements. A few of the key compliance provisions are below:
Section 302 of SOX makes senior management, specifically the CEO and CFO, responsible for the accuracy of publicly reported financial statements. This section requires senior officers to certify the accuracy of all reports and makes such senior officers ultimately responsible for accounting documentation and submission of all financial reports to the SEC.
Section 404 of Sarbanes-Oxley is the most contentious—and most difficult to comply with—of all sections of the Act. Section 404 dictates that management and auditors must establish internal accounting controls as well as reporting methods for assessing the adequacy of those controls. Annual reports must include an internal control report assessing the effectiveness of the control structure, in which any shortcomings must also be reported.
Under Section 802 of SOX, any attempt to alter, destroy, mutilate or conceal a document with the intent to impair its integrity or availability for use in an official proceeding is made a federal crime.
Much of SOX compliance for corporations is simply a matter of records storing. All financial records, communications, and related materials must be saved for at least five years in case of audit, including electronic documentation and communications. This requires paper files to be kept and organized and electronic files be to stored securely. In addition, financial reports and disclosures of financials and accounting practices must be carefully reported. Accordingly, many companies complain that Sarbanes-Oxley compliance is a costly endeavor.
Depending on the complexity of your needs, the cost of SOX compliance can vary drastically. Hourly rates for Priori securities lawyers range from $225 to $450 per hour. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers.
What is a Form 8-K and when should it be filed?
A Form 8-K is an official report of an unscheduled material event within a company or corporate changes that could be of importance to the shareholders or the SEC. Any time the fiscal year changes, a director or officer resigns, a major acquisition is made, bankruptcy is declared, financial reports or shareholders rights are modified or any other material event that could affect share price occurs, a Form 8-K needs to be filed with the SEC.