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How Sarbanes-Oxley Affects Equipment Leasingby Jeffrey Taylor12/7/09 - The legality of a federal board that oversees accounting firms was debated before the Supreme Court, with conservative justices suggesting that the board enjoys more independence from the president than the Constitution permits. The case, one of the major business disputes to be considered by the high court this term, tests a key provision of the 2002 Sarbanes-Oxley Act. Responding to concerns about the accounting that led to the collapses of Enron and WorldCom, Congress established an independent body to oversee the firms that do accounting for public companies. During oral arguments, conservative justices including Justice Antonin Scalia noted that the president's control over the accounting board is limited because the board answers to all five independent commissioners of the SEC, not just the chairman. "The president has adequate control over the SEC only because he can dismiss the chairman of the SEC. But the activity here is not governed by the chairman of the SEC," Justice Scalia said. "The governance of this board is by the members of the SEC." Chief Justice John Roberts pointed to the independence and power of the accounting board. He noted that the board can impose "collateral consequences" on companies that don't comply with its requests, all without input from the SEC. Liberal justices were more sympathetic to the law creating the accounting board. Justice Sonia Sotomayor asked how the accounting board's situation as an entity answering to the SEC is different from an employer who delegates responsibility. The case, Free Enterprise Fund v. Public Company Accounting Oversight Board, seemed likely to hinge on the views of the court's frequent swing vote, Justice Anthony Kennedy. Justice Kennedy, without hinting at his perspective, initiated a line of questioning about whether it is appropriate for the president to make recommendations to an independent agency. "Are you encouraging the president, on an ongoing, daily basis, to instruct an independent agency what he wants done?" Justice Kennedy asked Jeffrey Lamken, the attorney representing the accounting board. Mr. Lamken said the president has the same control over the board as he does over everything else that falls under the SEC's jurisdiction. Former SEC Chairman Harvey Pitt said the system now makes the SEC the "ultimate setter and arbiter of policy affecting our capital markets." If the accounting board were to become completely separate from the SEC, Mr. Pitt said, "the accounting profession would be torn in two diametrically opposite directions, and the SEC's policy objectives would be lost." The board may see its powers extended following the multibillion-dollar fraud orchestrated by money manager Bernard Madoff. 12/4/09 - A U.S. Supreme Court case may prompt Congress to scale back the 2002 Sarbanes-Oxley law, the measure that tightened oversight of financial disclosure after the Enron and WorldCom collapses. The justices will consider a challenge to one of the law’s central features: creation of the Public Company Accounting Oversight Board (PCAOB) as the auditing industry’s watchdog. A Nevada accounting firm and a small-government advocacy group say the board lacks the presidential control that the Constitution requires for executive branch agencies. A decision striking down the PCAOB would leave it to Congress to re-establish the board with more oversight, setting up a legislative fight that might sweep in other aspects of Sarbanes-Oxley. Learn more about the PCAOB Enacted in response to well-publicized incidents of corporate financial misdeeds, the 2002 federal legislation has provoked a re-examination of the off-balance sheet financing used by some publicly held companies. Mention Sarbanes-Oxley to lessors or lessees and they cringe. Why? Since the enactment of Sarbanes-Oxley (also known as the Corporate Corruption Act of 2002), many finance professionals do not sleep at night, worrying about the quality of their financials and whether enough disclosures have been made to ensure that investors have complete knowledge of their most complex financial transactions. In particular, Sarbanes-Oxley has been a pain to publicly-held companies, due to their extensive use of off-balance sheet financing. And, there is nothing juicier than keeping something off the balance sheet. What once used to be an advanced financing technique has turned into a search for the next Enron. Many officers would rather play it safe and avoid off-balance sheet financing all together. So, why are people afraid of Sarbanes-Oxley? Let’s look at a few of the provisions contained in this one-sided piece of legislation: Section 103: Auditing, Quality Control, Independence Standards And Rules The Public Company Accounting Oversight Board (PCAOB) shall: All documents and information prepared or received by the Board shall be confidential and privileged as evidentiary matter in any proceeding in any Federal or State court or administrative agency. However, all such documents and information can be made available to the Securities and Exchange Commission (SEC), the U.S. Attorney General, and other federal and appropriate state agencies. Section 302: Corporate Responsibility For Financial Reports The CEO and CFO of each issuer shall prepare a statement to accompany the audit report to cer-tify the appropriateness of the financial statements and disclosures contained in the periodic report, and that those financial statements and disclosures fairly present, in all material respects, the operations and financial condition of the issuer. A violation of this section must be knowing and intentional to give rise to liability. Section 401(a): Disclosures In Periodic Reports; Disclosures Required Each financial report that is required to be prepared in accordance with GAAP (Generally Accepted Accounting Principles) shall reflect all material correcting adjustments that have been identified by a registered accounting firm. Each annual and quarterly financial report shall disclose all material off-balance sheet transactions and other relationships with un-consolidated entities that may have a material current or future effect on the financial condition of the issuer. The SEC shall issue rules providing that pro forma financial information must be presented so as not to contain an untrue statement or omit to state a material fact necessary in order to make the pro forma financial information not misleading. Section 401 (c): Study and Report on Special Purpose Entities. SEC shall study off-balance sheet disclosures to determine
Requires each annual report of an issuer to contain an internal control report, which shall:
SEC is to conduct a study of securities professionals (public accountants, public accounting firms, investment bankers, investment advisors, brokers, dealers, attorneys) who have been found to have aided and abetted a violation of Federal securities laws. Title IX: White Collar Crime Penalty Enhancements
As a result of the enormous impact of Sarbanes-Oxley, many public companies have stepped up their knowledge of auditing areas of concerns. In particular, auditors are spending more time looking at the following operational procedures:
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