Conduct an Internet search to locate a copy of the Sarbanes?Oxley Act of 2002 and summarize the requirements of Section 406 of the Act. Then, search the SEC’s web site (www.sec.gov) to locate the SEC’s Final Rule: “Disclosure Required by Sections 406 and 407 of the Sarbanes?Oxley Act of 2002 [Release No. 33-8177]. Summarize the SEC’s rule related to implementation of the Section 406

Question

requirements?

What will be an ideal response?

Answer 1

Section 406 of the Sarbanes-Oxley Act of 2002 requires that the SEC issue rules that require a public
company to disclose whether the company has adopted a code of ethics and if the company has not,
reasons for no such adoption must be disclosed. Section 406 also requires that the SEC revise its
regulations related to matters requiring prompt disclosure on a Form 8-K regarding any change in or
waiver of the code of ethics for senior financial officers.
According to Section 406, a “code of ethics” refers to standards that promote the following:
• Honest and ethical conduct, including ethical handling of actual or apparent conflict of interests
between personnel and professional relationships;
• Full, fair, accurate, timely, and understandable disclosure in the periodic reports required to be
filed by the issuer.
• Compliance with applicable governmental rules and regulations.
In March 2003, the SEC adopted its final rule, “Disclosure Required by Sections 406 and 407 of the
Sarbanes?Oxley Act of 2002 [Release No. 33-8177], to require a public company to disclose whether it
has adopted a code of ethics that applies to the company’s principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing similar functions. A company
disclosing that it has not adopted such a code must disclose this fact and explain why it has not done
so. A public company also will be required to promptly disclose amendments to, and waivers from, the
code of ethics relating to any of those officers.