SOx TITLE III: CORPORATE RESPONSIBILITY

SOx TITLE III: CORPORATE RESPONSIBILITY

SOx’s Title III regulations contain major regulatory rules for audit committees and prescribe audit committee performance standards and a large set of corporate governance rules. The firm’s external audit firm is to report directly to the audit committee, which is responsible for their compensation, oversight of the audit work, and the resolution of any disagreements between external audit and management.

Financial Expert

SEC regulations define a “financial expert” as a person who, through education and experience, has:

• An understanding of generally accepted accounting principles and financial statements;

• Experience applying such generally accepted accounting principles in connection with the accounting for estimates, accruals, and reserves that are generally comparable to the estimates, accruals, and reserves, if any, used in the registrant’s financial statements;

• Experience preparing or auditing financial statements that present accounting issues that are generally comparable to those raised by the registrant’s financial statements;

• Experience with internal controls and procedures for financial reporting; and

• An understanding of audit committee functions.

                SOxTitle III

In some respects, an audit committee member is being asked to put herself or himself in the potential line of fire if the enterprise is ever questioned regarding some financial or internal control decision. The SOxlegislation also calls for audit committees to establish procedures to receive, retain, and treat complaints and handle whistleblower information regarding questionable accounting and auditing matters.

The signing officer, as part of what is referred to as Section 302, must certify that:

• The signing officer has reviewed the report.

• Based on that signing officer’s knowledge, the financial statements do not contain any materially untrue or misleading information.

• Again based on the signing officer’s knowledge, the financial statements fairly represent the financial conditions and results of operations of the enterprise.

• The signing officer is responsible for:

- Establishing and maintaining internal controls.

- Having designed these internal controls to ensure that material information about the enterprise and its subsidiaries was made known to the signing officerduring the period when the reports were prepared.

- Having evaluated the enterprise’s internal controls within 90 days prior to the release of the report.

- Having presented in these financial reports the signing officer’s evaluation of the effectiveness of these internal controls as of that report date.

The signing officer should disclose to the external auditors, audit committee, and other directors that any significant deficiencies in the design and operation of internal controls that could affect the reliability of the reported financial data have been disclosed to the enterprise’s auditors. The signing officer should also indicate whether there were internal controls or other changes that could significantly impact those controls, including corrective actions, subsequent to the date of the internal control evaluation.