Sunday, 21 December 2014

SOX Reporting and Disclosure requirements for Public Companies

Disclosure Requirments


The Sarbanes-Oxley Act requires public companies to reflect all material adjusting entries identified by the external auditor. The Act calls for the SEC to issue final rules requiring issuers to disclose all material off-balance sheet transactions, arrangements, and obligations. The Act specifically prohibits misleading pro forma financial information. Pro forma financial information must also be reconciled with what would be required under GAAP. The Sarbanes-Oxley Act generally prohibits personal loans to executives. In addition, stock transactions by directors, officers, and principal stockholders must be disclosed by the close of the second business day after the date of the stock transaction.

The Act requires internal control reports in each annual report. Management must state that it is responsible for the internal control structure and also provide an assessment of the effectiveness of that structure. Moreover, the external auditor must attest to the internal control assessment made by management. Audits of internal control are the subject of a subsequent Chapter in this book. Public companies are required to state whether they have a code of ethics for senior financial officers and, if not, why not. Also, any changes, or waivers to, the code of ethics for senior financial officers must be disclosed in a Form 8-K filing. Finally, the issuer must disclose whether the audit committee contains at least one financial expert and, if not, why not.


The Act requires the SEC to review the filings of each issuer at least once every three years. And issuers are required to disclose, in plain English, on a rapid and current basis any material changes in the issuers’ financial condition and results of operations.

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