OVERVIEW OF SOX

CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS

Principal executive and financial officers are responsible for designing, establishing and maintaining disclosure controls and procedures

The audit report must report their conclusions about the effectiveness of these controls and procedures

CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTING

The audit report must state if there were any significant changes in internal controls, including actions to correct deficiencies and weaknesses

CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS

Principal executive and financial officers must disclose to the audit committee and the auditors– Significant deficiencies in the design or operation

of internal controls– Any fraud that includes management or other

employees who have a significant role in the internal controls

CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS

Company officers must not improperly influence the auditors by– Offering bribes, incentives, future employment or

contracts for non-audit services– Providing an auditor with inaccurate or misleading

legal analysis– Threatening to cancel existing audit or non-audit

engagements– Seeking to have the partners removed

CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS

If a company is required to restate financial statements due to material non-compliance or misconduct, then executive and financial officers are required to reimburse the company for– Bonuses– Equity based compensation– Profits from the sale of company stock

CORPORATE RESPONSIBILITY FOR FINANCIAL REPORTS

Executives are prohibited from exercising and cashing out stock options or selling shares of stock during any pension fund black out period that prohibits employees from selling stock

ENHANCED FINANCIAL DISCLOSURE

“Management’s Discussion and Analysis” must include a section covering off balance sheet assets and liabilities, including– Guarantees (excluding warranties)– Retained or contingent interest in assets– Specified derivative arrangements– Obligations, or contingent obligations arising out

of an interest in an unconsolidated entity

ENHANCED FINANCIAL DISCLOSURE

“Management's Discussion and Analysis” must also include a tabular disclosure of contractual obligations– Long-term debt– Capital leases– Operating leases– Purchase obligations– Other long-term obligations

ENHANCED FINANCIAL DISCLOSURE

The SEC issued Regulation G which– Prohibits the public disclosure (either written or

orally) of a non-GAAP financial measure or disclosure that is misleading

– Requires, if disclosed, the non-GAAP measure be reconciled to the most directly comparable GAAP measure

– Requires disclosure of changes in the way non-GAAP measures are calculated

ENHANCED FINANCIAL DISCLOSURE

Amendments to regulation S-K prohibit inclusion in SEC filings of– Certain non-GAAP liquidity measures that

exclude charges or liabilities that require cash settlement

– Non-GAAP performance measures that eliminate or smooth non-recurring, infrequent or unusual items that are likely to recur

ENHANCED FINANCIAL DISCLOSURE

Each annual report must include an internal control report that

– States management is responsible for establishing and maintaining adequate internal controls and procedures for financial reporting

– Contains management's assessment of the effectiveness of the internal controls

– Includes a statement that the auditors have attested to and reported on management's evaluation of the internal controls