1. Impact On Government Contractors
Sarbanes-Oxley:
Impact On Government Contractors
National Contract Management Association
December 9, 2003
Greg Bingham And Richard Haynes Of
Tucker Alan Inc.

2. Historical Perspective
1930’s Stock Market Decline And Beginning Of The Great Depression
Securities Exchange Act Of 1934
Many Small Accounting Firms
Growth Of U.S. Economy, Multi-National Companies And Accounting Firms
Growth In Importance Of Wall Street

3. Historical Perspective (Continued)
Accounting Firms Gradually Diversify Into More Areas (E.G., Consulting, Computer Systems Installation, Tax Advice)
Natural Tension Between Company’s Desire For Positive Financial Disclosures And Auditors Desire For Properly Prepared Financial Statements
1980s - Big Eight Accounting Firms With Diverse Practice Areas (More Revenue From Non-Audit Functions Than Audit Functions)

4. Historical Perspective (Continued)
1990s – Consolidation of Accounting Firms
Late 1990s – Stock Market Run-Up
Early 2000s – Enron, Arthur Andersen, Sarbanes-Oxley, WorldCom, RiteAid, Adelphia, Waste Management, Tyco, HealthSouth, Xerox, Various Mutual Funds, And So On . . .
2003 – Four Very Large Accounting Firms Left

5. Background
Enron Demise And WorldCom Collapse In Part Led To The Desire For Legislative Action
Sarbanes-Oxley Was Created To Restore Investor Confidence And Hold Corporate America More Accountable
The Act Was Signed Into Law On July 30, 2002, By President Bush

6. Sarbanes-Oxley Act Of 2002
Title I: Public Company Accounting Oversight Board
Title II: Auditor Independence
Section 201 Prohibited Non-Audit Services
Section 203 Mandatory Audit Partner Rotation Every Five Years
Section 204 Auditor Reports To Audit Committee

7. Sarbanes-Oxley Act Of 2002 (Continued)
Title III: Corporate Responsibility
Section 302 Certification Of Disclosure In Companies’ Quarterly And Annual Reports
Section 304 Forfeiture Of Certain Bonuses And Profits
Section 306 Insider Trades During Pension Fund Blackout Periods
Section 307 Implementation Of Standards Of Professional Conduct For Attorneys

8. Sarbanes-Oxley Act Of 2002 (Continued)
Title IV: Enhanced Financial Disclosures
Section 401(a) Disclosure In Management's Discussion And Analysis About Off-Balance Sheet Arrangements
Section 404 Management Assessment Of Internal Controls
Section 407 Disclosure Of Audit
Committee Financial Expert

9. Sarbanes-Oxley Act Of 2002 (Continued)
Title IV: Enhanced Financial Disclosures (Continued)
Section 403ET Mandated Electronic Filings And Website Postings For Forms 3, 4 And 5
Section 406 Disclosures
Title V: Analyst Conflicts Of Interest
Title VI: Commission Resources And Authority

10. Sarbanes-Oxley Act Of 2002 (Continued)
Title VII: Studies And Reports
Title VIII: Corporate And Criminal Fraud Accountability
Section 802 Retention Of Records Relevant To Audits And Reviews
Criminal Penalties For Altering Documents Or Defrauding Shareholders

11. Sarbanes-Oxley Act Of 2002 (Continued)
Title IX: White-Collar Crime Penalty Enhancements
Title X: Corporate Tax Returns
Title XI: Corporate Fraud Accountability

12. Title I: Public Company Accounting Oversight Board (PCAOB)
Responsibilities Of The Board Include:
Registering Public Accounting Firms That Perform Audits Of Public Companies
Establishing Or Adopting Auditing, Quality Control, Ethics And Independence Standards Related To The Preparation Of Audit Reports

13. Title I: Public Company Accounting Oversight Board (PCAOB) (Continued)
Responsibilities Of The Board Include (Continued):
Conducting Inspections Of Registered Public Accounting Firms
Conducting Investigations And Disciplinary Proceedings Of Audit Firms And Associated Persons

14. Title I: Public Company Accounting Oversight Board Structure
Self-Regulatory Body
Non-Profit Corporation
Not An Agency Of The U.S. Government
Only An Act Of Congress Can Dissolve
SEC Has “Oversight And Enforcement Authority Over The Board”

15. Title I: Public Company Accounting Oversight Board - Key Initiatives
Registering Public Accounting Firms
Revising Generally Accepted Auditing Standards
Inspecting Public
Accounting Firms

16. Title II: Auditor Independence Requirements
Unlawful For A Registered Public Accounting Firm To Provide “Non-Audit” Services Contemporaneously With The Audit
Bookkeeping Or Financial Statement Preparation
Financial Information Systems Design And Implementation
Appraisal Or Valuation Services
Actuarial Services

17. Title II: Auditor Independence Requirements (Continued)
Prohibited “Non-Audit” Services (Continued):
Internal Audit Outsourcing
Management Functions Or Human Resources
Broker Or Dealer, Investment Adviser, Or Investment Banking
Legal Services And Expert Services Unrelated To The Audit

18. Title II: Auditor Independence Requirements (Continued)
Non-Audit Services Not Specifically Excluded (Including Tax Services) Must Be Pre-Approved By Audit Committee And Disclosed In Issuer’s Annual Report
Blanket Approvals Not Permissible

19. Title II: Auditor Independence Requirements (Continued)
Mandatory “Cooling Off Period” – A “Corporate Officer” Cannot Have Been Employed By The Company’s Audit Firm During The One-Year Period Proceeding The Audit
Lead Partner And The Reviewing Partner Must Rotate Off The Audit Every Five Years
Other Audit Partners Must Rotate After Seven Years With A Two Year Time-Out Period

20. Title II: Auditor Independence Requirements (Continued)
Enhanced, Specific Communications Required With The Issuer’s Audit Committee
Must Report All Critical Accounting Policies And Practices Used
All Alternative Treatments Of Financial Information Within GAAP
Material Written Communications Between The Auditing Firm And Management

21. Title III: Corporate Responsibility
CEO And CFO Must Prepare A Statement To Certify The “Appropriateness Of The Financial Statements And Disclosures” To Accompany The Issuer’s Quarterly And Annual Reports
Must Certify In The Statement That They Are Responsible For Establishing And Maintaining Effective “Internal Controls”
Effective Date: August 29, 2002

22. Title III: Section 302 Certification
Certified By CEO And CFO (Or Equivalent) Acknowledging Review Of The 10-Q or 10-K
Report Does Not Include Any Untrue Statement Of Material Fact Or Omit A Material Fact
Financial Statements Fairly Presented In All Material Respects (Not Limited To Conformance With GAAP)
Signing Officers Are Responsible For Establishing And Maintaining “Internal Controls”

23. Title III: Section 302 Certification (Continued)
Signing Officers Have Evaluated The Effectiveness Of The Disclosure Controls And Procedures
Disclosures To Auditors And Audit Committee Regarding Deficiencies In Internal Control Over Financial Reporting Or Fraud
Disclosure Of Significant Changes To Internal Control Over Financial Reporting

24. Title IV: Management Assessment Of Internal Controls
Each Annual Report Must Contain A Report On Internal Control Over Financial Reporting From Management
The Committee On Sponsoring Organizations Framework Can Be Used, But Is Not Required (See For More Information)
This Assessment Must Be Attested To By The Public Accounting Firm That Prepares Or Issues The Audit Report On The Company’s Financial Statements

25. Title VIII: Retention Of Records Relevant To Audits And Reviews
Mandated By Sarbanes-Oxley Act, Section 802
Requires Retention Of All “Records Relevant To Audit Or Review” Including Documentation Inconsistent With Auditor’s Final Conclusion
Documents Must Be Retained For Seven Years