A Public Company Accounting Oversight Board is established to ensure corporate accountability.

The Board is overseen by the Securities and Exchange Commission (SEC).

• The Board will have 5 members with 5 year terms
• 2 of the members will be current or former CPAs
• Members are appointed by the SEC after consultation with the Chairman of the Federal Reserve Board and the Secretary of the Treasury

• register public accounting firms
• establish, or adopt, by rule, "auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports for issuers"
• conduct inspections of accounting firms
• conduct investigations and disciplinary proceedings, and impose appropriate sanctions
• perform such other duties or functions as necessary or appropriate
• enforce compliance with the Act, the rules of the Board, professional standards, and the securities laws relating to the preparation and issuance of audit reports and other obligations and liabilities of accountants with respect thereto

set the budget and manage the operations of the Board and the staff of the Board

The Act prohibits audit firms from providing several types of consulting services to their clients to ensure independence including:

• bookkeeping or other services related to the accounting records or financial statements of the audit client
• financial information systems design and implementation
• appraisal or valuation services, fairness opinions, or contribution-in-kind reports
• actuarial services
• internal audit outsourcing services
• management functions or human resources
• broker or dealer, investment adviser, or investment banking services
• legal services and expert services unrelated to the audit

• rotate the lead audit or coordinating partner and the review partner every five years
• keep all audit and review workpapers for 5 years (destruction of these documents becomes a 10-year felony)

Each member of the audit committee shall be a member of the board of directors of the issuer, and shall otherwise be independent.  Independence is defined as not receiving, other than for service on the board, any consulting, advisory, or other compensatory fee from the issuer, and as not being an affiliated person of the issuer, or any subsidiary thereof.

Registered public accounting firms must make timely reports to the audit committee of:

• all critical accounting policies to be used
• all alternative treatments of financial information within GAAP that have been discussed with management, ramifications of the use of such alternatives, and the treatment preferred by the accounting firm
• other material written communications between the accounting firm and management

Corporate Regulation

CEOs and CFOs must certify that financial reports:

• fully comply with the requirements of Sections 13(a) and 15(d) of the SEC Act of 1934, and
• the information contained in the reports fairly present, in all material respects, the company's financial condition and results of operations

• they have reviewed the report
• based on their knowledge, the report does not contain any material misstatements or omissions and the financial statements and other financial information included in the report fairly present in all material respects the company's financial condition and results of operations, and
• they have designed and reviewed the effectiveness of internal controls to ensure that they receive material information and they have disclosed to the audit committee any fraud and all significantdeficiencies in the design or operation of the internal controls

Executives cannot sell company stock during blackout periods, and insiders must report all company stock trades within two days.

All annual reports filed with the SEC containing financial statements will be required to include all material corrections identified by a public accounting firm.

The following disclosures will be required for periodic reports:

• material off-balance sheet transactions
• pro forma financial information in a manner that is not misleading and is reconciled with the company's financial condition and results of operations under GAAP
• whether or not (and if not, why not) the company has adopted a code of ethics for senior financial officers (any changes must be disclosed immediately)
• management assessment of internal controls (the company's public accountant must report on and attest to the assessment made by the company's management).

Investor Protection

The SEC budget for collecting on securities fraud penalties is increased to $776 million.

Company officials facin judgments in securities fraud cases are prevented from sheltering assets in bankruptcy.

Investors now will have 5 years from the time of the fraud or two years from the time the fraud was discovered to bring suit.

Corporate whistle-blowers are given more protection.

Investment firms are prohibited from punishing their research analysts for being critical of client firms.

New Criminal Penalties

The maximum penalty for securities fraud is increased to 25 years.

A 20-year penalty is established for destroying, altering, or fabricating records in a federal investigation or for trying to defraud shareholders.

CEO and CFO penalties are increased for false statements to the SEC or for failing to certify financial reports to a $5 million fine and a 20-year prison term.

The maximum penalties for mail or wire fraud is increased to 20 years and 10 years for pension funds.

Links to other Sarbanes-Oxley Act web pages:

• Text of Sarbanes-Oxley Act