70 MODULE 21 PROFESSIONAL RESPONSIBILITIES

4. Amends Federal Securities Act of 1933 and Federal Securities Exchange Act of 1934 28. C
5. Law passed to reduce lawsuits against accounting firms and issuers of securities reates
(1) SEC's enforcement of securities laws not affected by act because law governs private litiga- new
tion
Public
6. Creates "safe harbor" from legal liability for preparation of forward-looking statements
Comp
7. Including projections of income, revenues, EPS, and company plans for products and services
8. To fall within safe harbor, written or oral forward-looking statement should include cautions any
and Accou
identify assumptions and conditions that may cause projections to vary nting
9. Purpose is to encourage company to give investors more meaningful information without
Oversi
fear of
lawsuits ght
10. Discourages class action lawsuits for frivolous purposes Board
11. Accomplished by 29. Boar
(1) Providing for stringent pleading requirements for many private actions under Securities Ex- d is
change Act of 1934 nonprofit
(2) Awards costs and attorneys' fees against parties failing to fulfill these pleading requirements
corporatio
12. Changes rules on joint and several liability , so that liability of defendants is generally
n not
proportionate to
their degree of fault federal
13. This relieves .accountants (and others) from being "deep pockets" except up to their agency.
proportional (1)
fault Violation
14. Exception-joint and several liability is imposed if defendant knowingly caused harm
of rules of
EXAMPLE: Plaintiffs suffered $2 million in damages from securities fraud of a company. The auditors of the
company are found to be 15% at fault. If the auditors did not act knowingly, they can be held liable for the 15% or this Board
$300,000. If they acted knowingly, they can be held liable for up to the full $2 million based on joint and several treated as
liability.
violation
15. Accountants liable for the proportionate share of damages they actually (and unknowingly)
caused of
plus an additional 50% where principal defendant is insolvent Securities
16. New Responsibilities and Provisions under Sarbanes-Oxley Act Exchange
Act of
17. This act is predicted to generate not only provisions summarized here but also new laws
1934 with
and regula-
tions for at least the next few years-new information for this module and selected changes in other its
modules will be available when relevant for your preparation for CPA exam pe
18. Sarbanes-Oxley Act, also known as Public Company Accounting Reform and Investor na
Protection lti
Act, is receiving much attention in accounting profession, Congress, and business community at es
large I

19. This Act already has and will continue to have further important impacts
.

20. Act is most extensive change to federal securities laws since 1930s-formulates new design
for
federal regulation of corporate governance of public companies and reporting obligations
21. Act changes some accountability standards for auditors', legal counsel, securities analysts,
officers
and directors
22. New federal crimes involving willful nonretention of audit and review workpapers
23. Retention required for five years (in some cases seven years)
24. Destroying or falsifying records to impede investigations
25. Provides for fines or imprisonment up to twenty years or both
26. Applies to accountant who audits issuer of securities
(1) Now also applies to others such as attorneys, consultants, and company employees
27. Act requires SEC to issue new rules and then periodically update its rules on details of
retaining
workpapers and other relevant records connected with audits or reviews