Sarbanes-Oxley Act provisions and their overlap with FCPA accounting requirements

What Are Management's Other Obligations? Sarbanes-Oxley Act of 2002 In 2002, in response to a series of accounting scandals involving US. companies, Congress enacted the Sarbanes- Oxley Act (Sarbanes-Oxley or SOX), which strength- ened the accounting requirements for issuers. All issuers must comply with Sarbanes-Oxley’s requirements, several of which have FCPA implications. SOX Section 302 (15 U.S.C. § 7241)—Responsibility of Corporate Officers for the Accuracy and Validity of Corporate Financial Reports Section 302 of Sarbanes-Oxley requires that a com- pany’s “principal officers” (typically the Chief Executive Officer (CEO) and Chief Financial Officer (CFO)) take responsibility for and certify the integrity of their compa- ny’s financial reports on a quarterly basis. Under Exchange Act Rule 13a-14, which is commonly called the “SOX cer- tification” rule, each periodic report filed by an issuer must include a certification signed by the issuet’s principal execu- tive officer and principal financial officer that, among other things, states that: (i) based on the officer’s knowledge, the report contains no material misstatements or omissions; (ii) based on the officer’s knowledge, the relevant financial statements are accurate in all material respects; (iii) inter- nal controls are properly designed; and (iv) the certifying officers have disclosed to the issuer’s audit committee and auditors all significant internal control deficiencies. SOX Section 404 (15 U.S.C. § 7262)—Reporting on the State of a Company's Internal Controls over Financial Reporting Sarbanes-Oxley also strengthened a company’s required disclosures concerning the state of its internal con- trol over financial reporting. Under Section 404, issuers are required to present in their annual reports management’s conclusion regarding the effectiveness of the company’s internal controls over financial reporting. This statement must also assess the effectiveness of such internal controls and procedures. In addition, the company’s independent The FCPA: Accounting Provisions auditor must attest to and report on its assessment of the effectiveness of the company’s internal controls over finan- cial reporting. As directed by Section 404, SEC has adopted rules requiring issuers and their independent auditors to report to the public on the effectiveness of the compa- ny’s internal controls over financial reporting.*“! These internal controls include those related to illegal acts and fraud—including acts of bribery—that could result in a material misstatement of the company’s financial state- ments.” In 2007, SEC issued guidance on controls over financial reporting.** SOX Section 802 (18 U.S.C. §§ 1519 and 1520)— Criminal Penalties for Altering Documents Section 802 of Sarbanes-Oxley prohibits altering, destroying, mutilating, concealing, or falsifying records, documents, or tangible objects with the intent to obstruct, impede, or influence a potential or actual federal investiga- tion. This section also prohibits any accountant from know- ingly and willfully violating the requirement that all audit or review papers be maintained for a period of five years. Who Is Covered by the Accounting Provisions? Civil Liability for Issuers, Subsidiaries, and Affiliates The FCPA’s accounting provisions apply to every issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file annual or other periodic reports pursuant to Section 15(d) of the Exchange Act. These provisions apply to any issuer whose securities trade on a national securities exchange in the United States, including foreign issuers with exchange- traded American Depository Receipts.” They also apply HOUSE_OVERSIGHT_022544