Networking: A Beginner's Guide
Section 302 mandates that the principal executive officer (usually the CEO) and the
principal financial officer (usually the CFO) certify each annual or quarterly report that
is filed with the U.S. Securities and Exchange Commission (SEC). These certifications
must state the following:
The certifying officer has reviewed the report.
Based on the officer's knowledge, the report does not contain any untrue
statement of material facts, and does not fail to state any material facts that
could result in the report being misleading.
The officer has evaluated the effectiveness of the company's internal controls
within 90 days of the report's date.
The officers have presented in the periodic report their conclusions about the
effectiveness of the internal controls of the company.
The officers have disclosed to the audit committee and to the auditors all
significant deficiencies regarding the operation of the company's internal
controls, which could adversely affect the company's ability to record, process,
summarize, and report financial data, and that they have disclosed any
fraud, material or not, that involves management or employees who have a
significant role in the company's internal controls.
The officers have disclosed any significant changes to the system of internal
controls used by the company, including any corrective actions that were taken
to address any weaknesses.
For public companies, a periodic report is their annual report on SEC form 10-K and their
quarterly reports on SEC form 10-Q.
Section 303 makes illegal any improper influence on the conduct of audits.
Specifically, it applies to any officer or director of the company, or any other person acting
under the direction of an officer or director, to take any action that fraudulently influences,
coerces, manipulates, or misleads the firm performing the audit of the company. I've
emphasized the words in the preceding sentence because this rule applies to anyone
who works with or provides information to the auditors, including IT personnel who
are involved in the company's internal controls.
Section 304 states that the CEO and CFO must reimburse the company for any
bonus they have received, including equity-based compensation, if the company is
required to restate its financial reports as a result of any misconduct. (You can now see
why CEOs and CFOs take SOX compliance very seriously!)
Section 305 modifies the Securities Exchange Act of 1934 to decrease the level of
unfitness of an officer or director that could bar that individual from serving as an
officer or director of a public company.
Section 306 bars directors and officers of a company from trading in the company's
stock or stock options during times when a pension fund blackout is in effect.