1.

Public company accounting oversight board

Section 101 of the Sarbanes-Oxley Act provides for the creation of the U.S. Public Company
Accounting Oversight Board (referred to in this study as the “Board”). The Board is organized as
a non-profit institution similar to the Philippine Institute of Certified Public Accountants
(“PICPA”). However, the Board has a specialized function, that is, to oversee audits of all public
companies, that is, those companies whose shares of stock are listed and traded in the public
stock exchanges. The Board was created to protect the interests of the investing public by
ensuring that financial reports of listed companies are informative and accurate with respect to
their true financial conditions, results of operations, and sources and uses of funds, and
disclosures of other information that may influence the market prices of their shares of stock.
The Board is also tasked with ensuring that audit companies and their partners have no other
financial interest in their client companies, which may affect the quality of their audit reports.

In the Philippines, the Philippine Regulatory Board of Accountancy is tasked under the
Revised Accountancy Law of 2004 with the supervision, control and regulation of the practice of
accountancy and has the power to oversee the quality of audits of all financial statements.

2. Conflicts of interest (in the recruitment for employment of audit team members by
client companies)

Section 208 of the Sarbanes-Oxley Act expressly prohibits the retaining of an audit firm if the
listed company’s chief executive officer, controller, chief financial officer, or any person serving an
equivalent position was employed by the audit firm and participated in any capacity in the audit of
the listed company within a one-year period preceding the audit. This provision, in effect, seeks to
prevent listed companies from taking advantage of personal connections for purposes of securing a
favorable audit opinion by recruiting as an employee a former influential audit team member/s.

The Code of Ethics for Professional Accountants in the Philippines requires auditors to
consider whether the employment of former audit team members in client companies will
constitute a threat to their independence.

3. Disclosures in periodic reports

Section 401 of the Sarbanes-Oxley Act requires

that financial reports must include a
statement of all material correcting
adjustments and off-balance sheet
transactions, arrangements, obligations, and
other relationships of the issuer that may have a
material current or future effect on the
company. The requirement is intended to
provide additional information and, thus,
protection to investors.
In the Philippines, the Accounting Standards Council requires disclosure of all significant
accounting policies (SFAS No. 15 1986) and all related party transactions (SFAS No. 16 1986) although
there is a move towards adopting international accounting standards by 2005. Currently, the SEC’s
Financial Disclosures checklist recommends disclosure of correction of all fundamental errors and
related party transactions.

4. Criminal penalties for defrauding shareholders of publicly traded companies

Section 807 of the Sarbanes-Oxley Act imposes a fine and imprisonment of

not more than 25 years on whoever executes, or attempts to execute, as scheme or artifice to
defraud any person in connection with listed securities. The same penalty is imposed on any
person who obtains, by means of fraud or fraudulent pretenses, money or property from a
person in connection with the purchase or sale of any listed security.

On the other hand, the Securities Regulation Code, under section 73 thereof, imposes a fine of not
less than P50,000 nor more than P5,000,000, or imprisonment of not less than 7 years nor more
than 21 years, or both, in the discretion of the court, for any violation of the said Code, in general. In
addition, in case of fraud, section 58 thereof requires payment of damages sustained by the injured
party.

5. Corporate fraud accountability

Section 1106 of the Sarbanes-Oxley Act increased the fine from $1,000,000 to $5,000,000 and the
penalty of imprisonment from 10 to 20 years for any willful violation by a natural person of the U.S.
Securities Exchange Act of 1934, as amended. The same penalties are imposed on the making of
any false or misleading statement in any document or report that is required to be filed under
the said Securities Exchange Act. Further, the Sarbanes-Oxley Act increased the fine from
P2,500,000 to $25,000,000 in case of violations committed by corporations.

As previously mentioned, under section 73 of the Securities Regulation Code imposes a lower
fine of not less than P50,000 but more than P5,000,000, or imprisonment of not less than 7
years nor more than 21 years, or both, in the discretion of the court, for any violation of the said
Code.