Sarbanes-Oxley Act of 2002
a law intended to protect the interests of those who invest in publicly traded companies by improving the reliability and accuracy of corporate financial reports and disclosures
The Sarbanes-Oxley Act of 2002 (SOX) is a federal law that was passed in response to the financial scandals of the early 2000s, including Enron and WorldCom. The act was named after its sponsors, Senator Paul Sarbanes and Representative Michael Oxley.
SOX is designed to protect investors and increase transparency in financial reporting. It establishes new or enhanced standards for public company boards, management, and public accounting firms. Some of the key provisions of SOX include:
1. Establishment of the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting industry and the quality of audits.
2. Requirements for companies to maintain accurate and complete financial records and to establish and maintain an effective system of internal controls over financial reporting.
3. Requirements for CEOs and CFOs to personally certify the accuracy and completeness of financial statements.
4. Restrictions on the types of non-audit services that accounting firms can provide to clients.
5. Provision for whistleblowers to report financial misconduct without fear of retaliation.
6. Increased penalties for securities fraud, including up to 25 years in prison.
SOX has had a significant impact on the financial industry, increasing the level of confidence investors have in publicly traded companies and improving the accuracy and reliability of financial reporting. However, it has also been criticized for adding additional regulatory burden and increasing costs for companies to comply with the law.
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