Sarbanes-Oxley Act in the United States

The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires, among other things, that companies assess the
effectiveness of their internal control over financial reporting annually and the effectiveness of their disclosure controls and procedures quarterly. If the stock companies are not able to comply with the requirements of the Sarbanes-Oxley Act in a timely manner, the market price of their stock could decline and they could be subject to sanctions or investigations by the New York Stock Exchange, the SEC or other regulatory authorities, which would require additional financial and management resources.

The corporate compliance with applicable provisions of Section 404 of Sarbanes-Oxley require that companies incur substantial accounting expense and expend significant management time on compliance-related issues as they implement additional corporate governance practices and comply with reporting requirements. While the businesses management’s assessment of internal control over financial reporting should result in conclusion that the internal
control over financial reporting is effective.

When companies conclude that their internal control over financial reporting is not effective, they may be required to expend significant time and resources to correct the deficiency and could be subject to one or more investigations or enforcement actions by state or federal regulatory agencies, stockholder lawsuits or
other adverse actions requiring them to incur defense costs, pay fines, settlements or judgments and causing investor perceptions to be adversely affected and potentially resulting in a decline in the market price of their stock.

Emerging Growth Company

An “emerging growth company”, as defined in the Jumpstart Our Business Startups Act, is permited to have elected to avail themsselves of the exemption from the requirement that its independent registered public accounting
firm audit its internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act until it ceases to be an “emerging growth company.” It is not certain if the reduced disclosure requirements applicable to “emerging growth companies” will make their common stock less attractive to investors, for additional risks relating to our “emerging growth company” status.

The Sarbanes-Oxley Act Explained

References

See Also

• Business Law
• Securities Regulation