I.

Introduction

The Sarbanes-Oxley Act of 2002 (SOX), also known as the Corporate Responsibility Act of 2002,
was an act passed by the U.S. Congress to protect investors from the possibility of fraudulent
accounting activities by corporations. It mandated strict reforms to improve financial disclosures from
corporations and prevent accounting fraud.

Sarbanes-Oxley Act of 2002 This Act was actually created in response to the various accounting malpractice in the early 2000’s
when public scandals such as Enron Corporation, Tyco International plc, and WorldCom shook
investor confidence in financial statements and demanded an overhaul of regulatory standards.
Contents:
The rules and enforcement policies outlined by the Sarbanes-Oxley Act of 2002 (SOX) amend or
1. What is Sarbanes-Oxley Act of 2002? supplement existing legislation dealing with security regulations. The Act was responsible for
a. Effects of SOX in U.S. Corporate Government? sweeping reforms in the following four areas:
b. Requirements of SOX to management and auditors?
2. Compare SOX with Philippine legislation/regulations.
1. Corporate Responsibility

2. Increased Criminal Punishment

3. Accounting Regulation

4. New Protections

(Sarbanes-Oxley Act Of 2002 (SOX)

https://www.investopedia.com/terms/s/sarbanesoxleyact.asp#ixzz5JLrufWnF)

II. Main Effects of the Sarbanes-Oxley Act on U.S. Corporate Governance include:

• An increase in the direct responsibility of senior corporate managers for the quality of their
company’s financial reports and disclosures.

• An increase in the audit committee’s independence from the company and its responsibility
Submitted by: regarding the company’s auditors.

Dacir, Pauline F. • Limitations on the types and nature of services that auditors can provide to a publicly traded,
Javier, Mikaela audit client.
Pineda, Gifern
Tantoy, Kloudette • The creation of an independent Board to oversee auditing practices regarding publicly traded
companies.
Submitted to:
Mr. Lindley Mesina
To reiterate, the Sarbanes-Oxley Act:

1. Imposed a great number of new duties and costs on public companies and firms of accounting.
Though implementing best practices of the corporate governance would result in additional
operating costs, it must be emphasized that the good corporate governance is not an option but
an obligation, if shareholder's interest is to be protected. Compliance costs are very small
fraction of the gargantuan losses which are suffered by stockholders who have invested in the
companies whose shares became worthless because they did not comply with good corporate
practices.

2. Reformed and re-empowered the board of directors of the corporate. SOX recognized that the
director’s independence is essential for the board to serve effectively as a check on the
management which allows for the director's liability if the board fails to exercise the appropriate
oversight.
 3. Encouraged the adoption of corporate codes of ethics. SOX needed the companies to disclose • Evaluate the implications of misstatements identified by the auditor as part of the interim
whether their senior executives and financial officers followed the code of ethics. If they didn't, review that relate to effective internal controls.
they had to explain why. • Determine whether changes in internal controls are likely to materially affect inter-nal
control over financial reporting.
4. Changed things for private companies too. Private companies which were not subject to SOX
(Hall, J. A. (2011). Information Technology Auditing and Assurance (3rd ed.). Australia: South-Western
reforms have adopted some of its provisions as best practices, such as ensuring the director's
Cengage Learning.)
independence and adopting audit and audit committee procedures.
IV. Comparison of Sarbanes-Oxley Act of 2002 with the Philippine Legislations / Regulations
(Soni, A. 2015. Impact of sarbanes-oxley act on corporate governance practices.
http://www.pbr.co.in/December2015/6.pdf) A barrage of scandals in recent years involving the corporate and financial services sector
prompted the move by the United States government to enforce the Sarbanes-Oxley Act of 2002. It
(Moat, D. Corporate governance under the sarbanes-oxley act. seeks to promote greater responsibility, accountability and transparency of external auditors and
https://www.hg.org/article.asp?id=24966) corporate governing bodies with respect to financial statements and reports of publicly traded
companies. On the other hand, the Philippines has responded through the Securities and Exchange
III. Requirements of Sarbanes-Oxley Act for management and auditors of a corporation
Commission by issuing the Code of Corporate Governance and Rules 68 and 68.1 implementing the
A. Management Securities Regulation Code summarized in a Financial Disclosures checklist. Moreover, to improve
confidence to them by the public, professional accountants in the Philippines have adopted a Code of
Ethics and moved towards the adoption of international accounting standards.
SOX requires management of public companies to implement an adequate system of
internal controls over their financial reporting process. This includes controls over transaction The table below shows a comparison between Sarbanes-Oxley Act of 2002 and Philippine
processing systems that feed data to the financial reporting systems. Management’s Law on Corporate Governance.
responsibilities for this are codified in Sections 302 and 404 of SOX.
SARBANES - OXLEY PHILIPPINE LAW ON
Section 302 requires that corporate management (including the CEO) certify their ACT OF 2002 CORPORATE
organization’s internal controls on a quarterly and annual basis. GOVERNANCE
In addition, Section 404 requires the management of public companies to assess the A. Oversight of Audits Section 101 Revised Accountancy
effectiveness of their organization’s internal controls. This entails providing an annual report -- Public Company Law of 2004
Accounting Oversight -- Philippine Regulatory
addressing the following points:
Board will oversee the Board of Accountancy is
audits of all public responsible for
1. Understand the flow of transactions, including IT aspects, in sufficient detail to identify companies. supervision, control and
points at which a misstatement could arise. regulation of practice of
2. Using a risk-based approach, assess both the design and operating effectiveness of accountancy and
selected internal controls related to material accounts.5 oversees the quality of
3. Assess the potential for fraud in the system and evaluate the controls designed to prevent audits.
or detect fraud.
4. Evaluate and conclude on the adequacy of controls over the financial statement re-porting B. Auditor Independence Section 201, 203, and Code of Ethics for
process. b.1 Services outside the scope of 208 Professional
5. Evaluate entity-wide (general) controls that correspond to the components of the COSO auditors -- prohibition of providing Accountants
Framework other financial services for -- prohibition of performing
an audit client. engagements directly
related to the preparation
B. Auditors
b.2 Audit partner rotation of the financial statements
-- rotation of audit lead of the audit client.
Section 302 also carries significant auditor implications. Specifically, external auditors must partners every 5 years. -- rotation of audit lead
perform the following procedures quarterly to identify any material modifications in controls that partners in audits of listed
may impact financial reporting: companies and likewise
b.3 Conflicts of interest recommends such
• Interview management regarding any significant changes in the design or operation of practice with respect to
internal control that occurred subsequent to the preceding annual audit or prior review of -- prohibition on retaining the conduct of external
interim financial information. an audit firm if CEO, audits, in general.
controller, CFO, etc of the -- Consideration as to
 client are employed by the whether employment of rapid and current basis. insiders.
audit firm and participated former audit team
in any capacity in the audit members in client
of the listed company companies are threat to E. Corporate and Criminal Code Section 802 and 807 Revised Penal Code of
within a one-year period independence. Accountability -- Destruction, alteration the Philippines (Sec172)
preceding the audit. e.1 Criminal penalties for altering and falsification of records -- imposition of Php
documents are imposed a fine and 5000.00 fine and
C. Corporate Responsibility Section 301 Code of Corporate maximum imprisonment of imprisonment up to 6
c.1 Public company audit -- Public Companies Audit Governance (Sec 2002) 20 years and 10 years on years for falsification of
committees Committees must be -- inclusion of independent destruction of audit documents and the use of
formed by listed directors in the board of records. such. section 235, in
companies and that such directors of public relation to 203 and 222,
c.2 . Corporate responsibility for committee shall be companies. of the National Internal
financial reports independent from the Revenue Code of the
company. -- In the Philippines, the Philippines requires
-- requires a certification of SEC released a Financial corporations to keep their
listed companies’ annual Disclosures Checklist books of accounts and
and/or quarterly reports by summarizing the other accounting records
the principal executive disclosures required by e.2 Criminal penalties for for 3 years.
officer or officers, and SRC Rules 68 and 68.1 defrauding shareholders of -- fine and imprisonment
principal financial officer or and current SFAS/IAS in publicly traded companies of 25 years maxed on Securities Regulation
officers, or persons effect as of January 1, whoever executes or Code
performing similar 2004. schemes to defraud others -- fine of Php 50,000 to
functions. in listed companies. Php 5,000,000 and
D. Enhanced Financial Disclosures Section 401, 402 and 407 Accounting Standards imprisonment of 7 to 21
d.1 Disclosures in periodic reports -- inclusion of a statement Council years for violation of the
of all material correcting -- disclosure of all code.
d.2 Prohibition on personal loans adjustments and significant accounting F. Corporate Responsibility for Section 906 National Internal
to executives off-balance sheet policies and related party Financial Reports -- fine maximum of Revenue Code of the
transactions. transactions. $1,000,000 and Philippines
d.3 Code of ethics for senior -- prohibits the granting by -- section 8, chapter II of imprisonment maximum of -- Willful falsification is
financial officers listed companies of
the Code of Corporate 10 years for certifying subject to Php50,000 to
personal loans to
Governance now allowing reports that are not Php100,000 fine and
executives. the payment of compliant with the imprisonment of 2 to 6
d.4 Disclosure of audit committee remuneration to directors. requirements of US SEC years.
financial expert -- prescribes the adoption -- has not yet come up Act of 1934. Willfull
of a Code of Ethics for with a similar code of certification will bear a
senior financial officers of ethics for senior financial $5,000,000 fine and
listed companies. officers imprisonment upto 20
d.5 Real-time disclosures -- requires listed years.
companies to disclose in Code of Corporate
their periodic reports Governance
whether or not the board -- requires that at least
committee has at least one audit committee (Tomboc, J.B.M. (2004). A Study of the U.S. Sarbanes-Oxley Act in Relation to Philippine Law on
one (1) member who is a member has related audit Corporate Governance. CBERD Working Paper Series.
financial expert experience.
-- requires corporations to link: http://www.dlsu.edu.ph/research/centers/cberd/pdf/papers/Working%20Paper%202004-05.PDF)
disclose to the public of -- the decision on whether
changes in the financial or not to use inside
condition and operations information is still left to
of listed companies on a the discretion of individual