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The Sarbanes-Oxley Act: Code of Ethics and Audit Committee Requirements
Within the Sarbanes-Oxley Act (the “Act”) of 2002, Sections 406 and 407 lay out new requirements regarding a code of ethics and financial experts on an issuer’s audit opinion. Companies with fiscal years ending July 15, 2003 or after are required to comply with these requirements. The goal of this three-page white paper is to explore the Code of Conduct and Audit Committee requirements in depth and to explain them in simple terms that can be easily comprehended. According to Section 406 of the Act, all public companies, including foreign issuers, must, in their annual report, disclose whether or not the company has adopted a written code of ethics. This section specifically refers to a written code of ethics in regards to the company’s principal executive officer, principal financial officer, principal accounting officer or controller, or people performing similar functions. Additionally, the rules indicate that a company may have separate codes of ethics for different types of offices, directors, and employees. This rule does not require that a company actually have a code of ethics, but if one is not presented, the reasons why must be defined. Additionally, the company does not have to alter its existing code, but amendments may be required to comply with this rule. Disclosures should be made to state the reasons why a company has not amended its code of ethics to comply with SEC-defined rules. Every issuer should have its own code of conduct that has been specifically tailored to that company. The SEC leaves decisions as to specific provisions, compliance procedures, and disciplinary measures for ethical breaches up to each individual company. In order for a company to meet the SEC requirements, however, their code of ethics should be designed to prevent fraud or other illegal behavior and promote the following:
The Sarbanes-Oxley Act allows publicly traded companies three methods of publishing its code of ethics: [continued...] Want to know more? Download the White Paper "The Sarbanes-Oxley Act: Code of Ethics and Audit Committee Requirements" for just $9.95. |
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