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Corporate Governance and Accountability under
Sarbanes-Oxley Act of 2002. On July 30, 2002, President George W. Bush signed the Sarbanes-Oxley Act of 2002. The bill establishes new rules of corporate governance and accountability for accounting for U.S. and foreign publicly owned companies whose shares are registered with the U.S. Securities and Exchange Commission. If you work for such a company, you have some immediate actions for timely compliance, some by August 30, 2002. This legislation has potential importance to both outsourcers and their customers, as well as their accountants, executives, investment bankers, employees and attorneys. Scope of the Law. Enacted in the wake of a series of corporate accounting scandals, this vast and sweeping legislation establishes a public accounting oversight board, adopts certain minimal measures to preserve auditor independence, amends federal security laws to hold insiders and corporate executives and directors to higher standards of care in trading securities (including blackout periods during which such trading is prohibited), increases and extends corporate disclosures of accounting matters, sets standards for "corporate and criminal fraud accountability" and hardens the penalties for "white collar crime." For particular provisions on corporate responsibility for financial reports and the accuracy of financial reports (including "off balance sheet transactions"), see our copy of the law at http://www.outsourcing-law.com/Sarbanes-Oxley_legislative_text.htmStudy on Manipulative Accounting. Investment bankers will now become the subject of a new SEC study. But the study will go further, covering topics that affect virtually every publicly traded outsourcing services provider and its methods of operation. The study will review, among other issues relating to Enron and Global Crossing's bankruptcies, the role of investment bankers and other advisors:
Impact of Sarbanes-Oxley Act of 2002 on Outsourcing Service Providers. For outsourcing service providers, the new law creates the risk that the SEC might seek to impose penalties for failure to adopt conservative accounting principles. We think that this law could create challenges for outsourcers that adopt the percentage of completion method of accounting, which may be appropriate but nonetheless perhaps not as credible or conservative as the "as collected" basis. Take our Survey on related accounting issues. Impact of Sarbanes-Oxley Act of 2002 on Employees. The Sarbanes-Oxley Act of 2002 protects employees from termination or other major adverse effect if they report alleged violations of the accounting rules or corporate governance requirements of that law. For a copy of the act as it applies to employees, please refer to our copy of the law at http://www.outsourcing-law.com/Sarbanes_Oxley_legislative_text.htm.Please note that this gives new protections to whisteblowers who are employees, but also to non-employees as well. Please refer to our copy of the law at http://www.outsourcing-law.com/Sarbanes_Oxley_ACT_2002_legislative_text.htm Impact of Sarbanes-Oxley Act of 2002 on the Role of
Attorneys in Outsourcing. The Sarbanes-Oxley Act
of 2002 on corporate governance and accountability requires attorneys to take
their concerns about accounting treatment to in-house lawyers and ultimately to
the Board of Directors. Law firms assisting parties to an outsourcing
transaction should consult with their clients concerning the accounting
treatment implicit in the transactional structures. Articles |
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