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Sarbanes-Oxley Act of 2002, and Changes in Auditing Standards (SAS 99)

Sarbanes-Oxley Act of 2002, and Changes in Auditing Standards (SAS 99). BFSG Meeting December 10, 2002. Sarbanes-Oxley Overview. Sweeping legislation, passed July, 2002 Reforms in corporate governance, reporting, and audit profession Calls for further rule-making by SEC

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Sarbanes-Oxley Act of 2002, and Changes in Auditing Standards (SAS 99)

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  1. Sarbanes-Oxley Act of 2002, andChanges in Auditing Standards (SAS 99) BFSG Meeting December 10, 2002

  2. Sarbanes-Oxley Overview • Sweeping legislation, passed July, 2002 • Reforms in corporate governance, reporting, and audit profession • Calls for further rule-making by SEC • Applies to entities whose interests are publicly-traded on NYSE, NASDAQ

  3. S-O – Overview (Continued) • Prohibits external auditors from providing certain non-audit services • Requires management to assess and report on internal controls • Makes CEO and CFO personally accountable for financial statement accuracy • Puts forth many other imperatives, which could be adopted under “best practices” criteria • (See handout)

  4. Impact on Not-for-Profits • No direct applicability for MIT • We do not file 10-K’s, or 10-Q’s with SEC • Requirements of our auditors may impact us • “Atmospheric” application, driven by trustees and peers • Elect to comply with certain aspects as “best practices”, without increasing risk • Gap analysis – review with Audit Committee in June, 2003 • Remain vigilant for new requirements

  5. Federal Sentencing Guidelines for Organizations (FSGO) • Enacted in 1988 • Sets penalties for organizations convicted of federal crimes (fraud, environmental violations, etc.) • Leniency demonstrated toward organizations with effective compliance programs

  6. Matters to Consider • Responsibility for determining extent of voluntary adoption of S-O • Audit Committee • BFSG • Code of Ethics/Business Conduct • Process around violations • Review of financial disclosures • Approach to compliance

  7. SAS 99 • New auditing standard, to enhance auditors’ fraud detection procedures • New procedures include: • Queries about fraud risks • Additional review of “override” controls (unusual transactions, exceptions, estimates, management judgments) • Assessment of risk deterrent/risk mitigation programs • Effective for fiscal 03 audit

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