The Sarbanes-Oxley Act at a glance

Paris, 15 October 2002 

It has now been three months since President George W.Bush signed into law the Sarbanes-Oxley Act, arguably the most important piece of US financial legislation since the 1930s. Washington's willingness to enforce tougher corporate governance rules remains intact, but now faces growing concerns among US and foreign companies.

The enactment of Sarbanes-Oxley in July came in due response to the recent wave of corporate scandals. The Act, self-described as “protecting investors by improving the accur acy and reliability of corporate disclosures made pursuant to the securities laws", includes, among others, the following key provisions:

• CEO/CFO certification of financial statements
• Ban on personal loans to directors and executives
• Prohibition of certain non-audit services for accounting firms
• Regulation of audit committee responsibilities and composition
• Disclosure requirements for off-balance sheet transactions
• Limited insider trading during pension fund blackout periods
• Two-day deadline for reporting share transactions
• New regulatory body for public accounting firms
• Increased civil and criminal penalties for corporate fraud

Legislation reform was made with the consent of US business, but many executives are now warning that over-regulation and increased legal pressure could become risk inhibiting and, eventually, be bad for business. Companies and governments in Europe and Asia have put the Securities and Exchange Commission (SEC) under great pressure to obtain a few concessions over the Sarbanes-Oxley Act for firms whose shares are traded in the US, as they consider that they have enough safeguards within their own jurisdictions.

SEC chairman Harvey Pitt said non-US companies could be granted some exemptions from the new laws and that people doing business in the US could rest assured that Washington's objective was not to create new impediments.

Please click here for the full text of the Sarbanes-Oxley Act