With the passage of the Sarbanes-Oxley Act, Congress is raising the bar on what is expected of public companies. As of today, this act only applies to public companies, defined as companies that are subject to the Form 10-K, 10-Q, and 8-K reporting requirements under the Securities Exchange Act of 1934. However, most progressive companies are complying with the new requirements to reassure investors and third party lenders.

In addition to complying with new requirements, many companies are driving initiatives to improve the accuracy and relevance of financial reports. Initiatives include:

• Detailed account analysis and tighter reconciliations
• Contracting with project professionals to ensure accounting policies and procedures are consistently followed at all levels of the organization
• Implementation of cutting edge systems to improve the accuracy and timeliness of reporting
• Utilizing subject matter experts to analyze accounting for key functions such as acquisition and divestitures and option pricing

Those are a few proactive steps companies are taking to prevent stockholder surprises. The following information addresses steps that must be taken by executives and their board of directors.

The initial deadline has passed and all CEOs and CFOs 'signing officers' should be certifying in each form 10 Q and form 10 K ('filing documents') that:

• An internal control system is established and maintained
• The system is adequate to identify material deficiencies at the corporate and subsidiary level
• These results will be communicated, with conclusions, in a report covering a period within 90 days of the filing date to officers and the board of directors
• In addition to addressing the adequacy of internal controls, this report will address any fraud involving management or key employees
• The signing officers will report any changes, positive or negative, since the date of the report on internal controls

Signing officers face criminal penalties for:

• Tampering or destroying records relevant to a federal investigation
• Failure to provide certification of filing documents
• Retaliation against whistleblowers
• Securities Fraud
• Destruction of audit files for periods within five fiscal years

Filing documents must include verbiage indicating an internal control process is established and a summary of results of internal reviews must be published in the filing documents covering the period ending with the last fiscal year.

Any compensation resulting from fraud in periods used to calculate incentive bonuses will be returned to the company. Effectively all new loans to executive officers and boards of directors are prohibited, except for those existing loans grand fathered in under the Act.

Trading restrictions on company defined benefit and contribution plans apply to executives. This restricts executive trading during blackout periods.

Major changes to financial reporting requirements are: Filing Documents must include whether or not, and if not, include reasoning why not, the company has a code of ethics followed by key accounting executives and managers.

Independent audit firms must be registered with the Public Company Accounting Oversight Board to opine on the financial statements of public companies.

Within 270 days of the signing of the Sarbanes Oxley Act, audit committees are responsible for:

• The performance of the independent audit firm and conflict resolution between client and audit firm
• Audit committee members can receive no direct or indirect fees from the company except for directors' fees
• Establish and monitor a complaint and whistleblower line of communication regarding improper controls, accounting and auditing procedures
• Filing documents must disclose whether or not at least one member of the audit committee is a 'financial expert' with an understanding of GAAP, internal controls, and experience preparing or auditing financial statements.

Those are the key points for executives and the board of directors regarding new governance regulations. If you would like to discuss how other key companies are implementing these new requirements and taking additional steps to increase the accuracy and relevance of financial reports, please call the professionals at Vaco Resources.