On July 30, 2002, President George W. Bush signed into law legislation that changed the corporate landscape in the United States in regard to financial reporting and auditing for publicly traded companies. The Sarbanes-Oxley (SOX) Act of 2002 (Public Law 107–204) was written with the intent of addressing some of the issues brought to light during the incidents with Enron and Arthur Andersen. An offshoot of this legislation is the impact that it could have on SH&E Professionals, who work at companies subject to SEC (Security and Exchange Commission) reporting requirements. This paper will address how SH&E professionals can understand the implications of Sarbanes-Oxley on their company. The members departments, their organizations, and even their jobs may depend on it.
The law has far reaching effects into the financial reporting systems of American companies subject to SEC reporting requirements. In addition to establishing records retention requirements for audit papers, the law creates a new oversight board for accounting firms auditing publicly traded companies. This public law also addresses auditor independence, corporate responsibility at publicly traded companies, financial disclosures of publicly traded companies, and conflicts of interests of financial analysts. The new law also creates protections for "whistleblowers" applicable to private and public companies and imposes new criminal penalties relating to fraud, conspiracy, and interfering with investigations.
Presented here is a brief summary of federal securities laws and regulations, as well as guidance from the SEC and various accounting authorities, applicable to the assessment and disclosure of environmental liabilities. It also highlights provisions of the SOX Act that may have a substantial impact on public companies with environmental liability concerns.
Three sections of Regulation S-K (which provides the disclosure requirements for periodic reports filed with the SEC) require the disclosure of environmental liabilities: Item 101, relating to the description of a company's business; Item 103, relating to disclosure of legal proceedings; and Item 303, relating to Management's Discussion and Analysis of Financial Condition and Results of Operations.
In addition, the SEC and other accounting authorities have published bulletins and statements regarding the assessment and disclosure of environmental liabilities, including:
Statement of Financial Accounting Standards No. 5: addresses accounting and reporting of loss contingencies, such as site clean-up or remediation.
SEC Staff Accounting Bulletin 92: using a question and answer format, provides guidance regarding accounting and disclosure obligations for contingent environmental liabilities.
American Institute of Certified Public Accountants Statement of Position 96-1: provides guidance with respect to the recognition, measurement, display and disclosure of environmental liabilities, including benchmarks for making materiality determinations at various stages of assessment and remediation.
