What is Sarbanes-Oxley Act

A U.S. law designed to enforce accountability for the financial record keeping and reporting at publicly traded corporations. Publicly traded organizations are responsible for the security, accuracy, and reliability of the systems that manage and report their financial data.

It is a U.S. federal law enacted on July 30, 2002 as a response to multiple corporate scandals by major corporations such as Enron, Worldcom, Arthur Andersen, Global Crossing, Imclone Systems Incorporated, Adelphia and Tyco international among other companies. This Act was proposed by U.S. senator Paul Sarbanes and U.S. representative Michael Oxley. In the case of Enron, shareholders lost millions of dollars while the company was hiding huge loses and at the same time stock prices were steadily increasing in value. The Sarbanes-Oxley Act (SOX) required stricter standards to publicly traded companies in order to avoid accounting irregularities and penalized fraudulent activities. Some of the stricter standards were to require officers of the company to sign financial statements so they can be personally responsible for any accounting irregularity. If fraudulent activities were uncover, then higher fines will be imposed and prison sentences were also contemplated.SOX included the Securities and Exchange Commission (SEC) to oversee the compliance of the new regulations and got more authority to investigate suspicious accounting activities, and created a nonprofit, the Public Company Accounting Oversight Board (PCAOB), to certify the audits of public companies. SOX is also very clear on the roles of auditors in order to avoid conflict of interest given the fact that before SOX, auditing firms used to provide other non-auditing services to companies that they were auditing. Companies are responsible for hiring independent external auditors. SOX has several sections, but the two main sections are section 302 and 404. In Section 302, CEOs and CFO are required to take responsibility for the accuracy of financial reports. In Section 404, independent external auditors must certify the accuracy and effectiveness of the internal controls.

Regulates enterprises, as defined by the Securities Exchange Act of 1934.

A law the U.S. Congress passed on July 30, 2002 of that year to help protect investors from fraudulent financial reporting by corporations.

Act passed in 2002 to safeguard shareholders from deceptive accounting and unethical behavior.

It is a law passed by US Congress in July 2002 with the intention to protect investors from fraudulent and misleading financial reporting by firms through major reforms in financial reporting criteria.