Posted on 05/13/2022 9:17:58 AM PDT by DoodleBob
The Sarbanes-Oxley Act (SOX) is a federal act passed in 2002 with bipartisan congressional support to improve auditing and public disclosure in response to several accounting scandals in the early-2000s. The act was named after the bill sponsors, Senator Paul Sarbanes and Representative Michael Oxley, and is also commonly referred to as SOX. Find the statutory text here: Pub.L. 107–204.
Background
In the early-2000s, accounting scandals at major firms shook financial markets, calling on Congress to increase investor protection....
Provisions:
In enacting SOX, one of Congress’s primary aims was to prevent a firm’s management from interfering with an independent financial audit. Section 302 and 303 seek to enhance the independence of audits through regulating internal procedures and management actions. Section 302, codified 15 U.S.C. § 7241, requires public companies to adopt internal procedures for ensuring accuracy of financial statements and makes the CEO and CFO directly responsible for the accuracy, documentation, and submission of the financial reports and internal control structure.
...
Congress also sought to ensure the Act’s effectiveness by providing for robust enforcement and oversight provisions. Section 301, codified 18 U.S.C. § 1350 which imposes criminal liability on any officer, i.e. a CEO and CFO, who knowingly or willfully submits non-complying financial statements. Section 303, codified 15 U.S.C. § 7242, which makes it unlawful for any officer or director to exercise improper influence on audits, such as through coercion, manipulation, or fraud. Section 404, codified 15 U.S.C. § 7262, which requires management to establish adequate internal control structure and procedures for financial reporting. It also requires management to submit an end-of-the-year assessment on the effectiveness of the internal control structure.
(Excerpt) Read more at law.cornell.edu ...
“I expect the SEC will go after Twitter if there is a case.”
I imagine they’re doing so right this very moment. Look for the cases to be prosecuted in the SDNY which deeply frowns on securities fraud.
Income is recorded on financial statements, not customers.
I’ve been in audit, as well.
The SEC people of multiple genders can still be fired on the spot by Xao Bai-Dung and prosecuted in show trial by Mary Garland.
“Which is why going private equity is nice.” Unless of course the private equity firm that bought you out is named GPB Capital. Estimated to be the 3rd largest ponzi scandal in US history, and the principals are still not in prison.
It was a heartbreaking experience.
“I will say I am not aware of a SOX control that would care about the number of customers. Instead, it is strictly financial, so income and expenditures would be things the accounting department would have to get right—not the number of “valid customers.””
My thoughts exactly.
This may be a road map to taking down all of the tech companies with bots and fake accounts.
SOX can make the most resolute board room quake with fear. Once it gets on you, accusation or not, it does not go away. You can quit but it will follow you.
This could be even more fun to watch than it is now.
SOX should be applied to universities. If, for example, a college claimed to have a professor of Native American descent, the college’s president should be held accountable if it’s really a shrill harpie gaming the affirmative action system on her way to the Senate.
SOX covers more than just what a company reports as income.
Significantly overstating customers would be a material mistatement.
Customer count is nowhere in a SOX report.
It may be in their annual report, but it is not a SOX financial item. I know.
When ad rates are set by the number of customers, then the income is directly influenced by the allowance of fake accounts, thereby inflating revenue based on known fraudlent data. Wouldn’t that count as cooking the books?
I’ve not been in a financial audit role, so I’m asking a real question to which I do not have the answer.
Ad rates have nothing to do with the accuracy of the financial statement.
It’s analogous to saying the job you have affects the accuracy of your bank account statement. It’s can’t. You can increase the funds in the account or decrease the amount taken out, but none of this affects the “accuracy” of the accounting numbers.
It’s ripping off the ad buyers but also Share Holders which is even worse because of regulations and huge sums of money are in play.
Perhaps charges are in order for the Board of Directors. That’s too bad. 😆🤣😂
Elon Musk tendered an offer based on the representations of the company by their Directors and Executive who asserted that they were correct. They agreed to the terms presented by Musk and now they are engaged in good faith negotiations to finalize the transaction. We now know that Twitter’s representations were not correct and they knew it.
My guess is that Musk knew this at the outset and he set a trap that the Twitter leadership could not avoid. He holds all of the cards and he has options. He can walk away from the deal, which will destroy the company, or he can sign the deal under a renegotiation agreement that will reduce the purchase price that more closely aligns with the real value of this company. The Directors and the Officers of the company will be in serious legal jeopardy and may end up as defendants in a criminal court.
Elon Musk tendered an offer based on the representations of the company by their Directors and Executive were correct. They agreed to the terms presented by Musk and now they are engaged in good faith negotiations to finalize the transaction. We now know that Twitter’s representations were not correct and they knew it.
My guess is that Musk knew this at the outset and he set a trap that the Twitter leadership could not avoid. He holds all of the cards and he has options. He can walk away from the deal, which will destroy the company, or he can sign the deal under a renegotiation agreement that will reduce the purchase price that more closely aligns with the real value of this company. The Directors and the Officers of the company will be in serious legal jeopardy and may end up as defendants in a criminal court.
If you are overstating customers, you’re going to have to refund advertisers. That’s going to directly impact the financials.
That has nothing to do with the financial statement.
Twitter and Facebook and the other social media companies lie about the number of users. They know there are many fake accounts. This boosts the stock price. The owners should lose all the money.
When the financial statements is based on revenues that are overstated, that definitely does have something to do with the financial statements.
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