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Sarbanes-Oxley - Business Law Related Questions

Do you want know more about the Sarbanes-Oxley Act? Do you need to know how this act impacts the financial environment? Sarbanes-Oxley Act is essentially a law which is applicable to all organizations, whether they are small or large and is constituted of 11 titles which elaborate specific features that fall under its purview. This act’s main objective is to promote a clean, transparent manner of conducting business and economic transactions. Legal Experts online are able to provide more details and relevance of this act to those who have questions or seek information.

Read below a few questions Experts have answered regarding Sarbanes-Oxley.

What is the Sarbanes-Oxley (SOX) Act?

Sarbanes-Oxley (SOX) was essentially implemented to address any potential weaknesses in accounting and corporate culture. It applies to publicly-traded companies and their officers, employees, contractors, subcontractors or agents. The main requirement is that the company should be traded publicly. It helps regulate the disclosure of public corporation financial information. It also creates personal civil and criminal liability for executive officers who may be misrepresenting their organization’s financial condition to the public. Essentially, the Sarbanes-Oxley act requires the organization to disclose their activities to prevent anti-social dealings.

How has the Sarbanes-Oxley Act impacted the financial environment?

The Sarbanes-Oxley Act was enacted in direct reaction to the Enron scam that resulted due to fraudulent and misleading financial statements that corporate employees/executives and accountants should have been aware of. Since it is not possible for a law to dictate morals or ethics and subject it to legal review, the Sarbanes-Oxley act seeks to make corporate executives and accounting professionals personally liable to avoid misrepresentation and fraud. The executives are liable both on criminal and civil grounds for any failure on the part of a company to properly report financial results, failure to enact and follow appropriate corporate controls on internal accounting matters. They also need to personally declare that the company's accounting tracking systems and procedures are accurate and truly reflect the company's financial standing and records. The act also requires an auditing board to be established within the corporation to guarantee that the accounting reports are accurate.

Is it a violation of the Sarbanes-Oxley Act if a retailer sells at a higher price and takes a check to cover the cost of that hike to fund another company?

Based on this description, it could be considered as a form of kickback under the Sarbanes-Oxley Act since the books are being manipulated and funds are being diverted to pay for items apart from what the original budget was allocated for. Manipulation of funds from one account to another account is occurring here since there is an agreement to pay more for an item in exchange for getting the money back from the vendor. This would need to be investigated to rule out or confirm if an irregular method is being adopted to divert funds or whether this is a kickback scheme. This can be proven with certainty only on actual examination of records and accounts.

How does the Sarbanes-Oxley Act affect foreign policy?

Section 106 of this act requires that foreign accounting firms that do business with companies fall under its purview and need to adopt practices outlined in this act, along with many other domestic firms. Title III of the law requires that foreign corporations (companies which conduct business in the U.S. and publicly traded in U.S. markets) that are registered with the Security and Exchange Corporation (SEC) comply with the provisions of corporate governance. However, since foreign corporations are also subject to their own laws, different corporate structures and cultures that are unknown in the U.S., it can make some of the requirements of Sarbanes-Oxley redundant and incompatible with the structures of these foreign businesses. If the U.S. imposes laws on foreign companies (operating in foreign countries) that are inconsistent or burdensome with the foreign country's laws, it could lead to strained relations. This is where the role of SEC and state department comes into the picture, to work out hurdles or issues related to other corporate governance structures, contradictory laws in order to allow the Sarbanes-Oxley regulations to become applicable without being burdensome on foreign countries.

How can the Sarbanes-Oxley Act help a board member understand the proper procedure of handling financial affairs in a new entity?

The proper method to address the concerns is to ask for the documentation for review. If they refuse to provide the requested information, the board can seek to remove the officers with or without cause unless the bylaws state differently. They need to make the records available to the entire board and under Sarbanes-Oxley, each board member is liable for doing due diligence on the reports. A corporate attorney responsible for ensuring compliance can be approached. If not, a derivative action is necessary where the company can sue the attorney for breach of fiduciary duty and compel them to comply. This requires an attorney to sue them in their capacity as officers. The last option is a shareholder derivative suit against the officers; however, most likely the problem should get sorted without reaching this stage.

Can a board member of a private company ask to seek reprisal from the lawsuit through the Sarbanes-Oxley Act in his legal contract?

Essentially, the Sarbanes-Oxley Act is not applicable to privately held companies. The board member here is probably interested or asking to be free from liability that can result from corporate actions.

The above information has provided many insights about the Sarbanes-Oxley Act. Compliance with this legislation need not be a daunting task. Similar to any other regulatory requirement, it needs be addressed methodically, through proper analysis and study. This is when Experts online can make worthy and timely contributions to help understand the nuances better. To ask your particular question and get customized answers, contact legal Experts online. 

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