What Is the Sarbanes-Oxley (SOX) Act of 2002?
The Sarbanes-Oxley Act of 2002 is a legislation the U.S. Congress passed on July 30 of that 12 months to help give protection to buyers from fraudulent financial reporting by the use of companies. Often referred to as the SOX Act of 2002, it mandated strict reforms to provide securities regulations and imposed difficult new penalties on lawbreakers.
The Sarbanes-Oxley Act of 2002 were given right here in keeping with financial scandals throughout the early 2000s involving publicly traded companies similar to Enron Corporate, Tyco International plc, and WorldCom. The high-profile frauds shook investor confidence throughout the trustworthiness of corporate financial statements and led many to name for an overhaul of decades-old regulatory necessities.
Key Takeaways
- The Sarbanes-Oxley (SOX) Act of 2002 were given right here in keeping with extraordinarily publicized corporate financial scandals earlier that decade.
- The act created strict new laws for accountants, auditors, and corporate officers and imposed additional stringent recordkeeping prerequisites.
- The act moreover added new criminal penalties for violating securities regulations.
The act took its determine from its two sponsors—Sen. Paul S. Sarbanes (D-Md.) and Rep. Michael G. Oxley (R-Ohio).
Sarbanes-Oxley Act Of 2002 – SOX
Understanding the Sarbanes-Oxley (SOX) Act
The foundations and enforcement insurance coverage insurance policies outlined throughout the Sarbanes-Oxley Act of 2002 amended or supplemented provide regulations dealing with protection regulation, along side the Securities Exchange Act of 1934 and other regulations enforced by the use of the Securities and Exchange Rate (SEC). The new legislation set out reforms and additions in 4 number one areas:
- Corporate responsibility
- Upper criminal punishment
- Accounting regulation
- New protections
Major Provisions of the Sarbanes-Oxley (SOX) Act of 2002
The Sarbanes-Oxley Act of 2002 is a complicated and lengthy piece of regulation. 3 of its key provisions are typically referred to by the use of their section numbers: Section 302, Section 404, and Section 802.
Because of the Sarbanes-Oxley Act of 2002, corporate officers who knowingly certify false financial statements can move to prison.
Section 302 of the SOX Act of 2002 mandates that senior corporate officers in my view certify in writing that the company’s financial statements comply with SEC disclosure prerequisites and “quite present in all topic subject matter respects the financial state of affairs and results of operations of the issuer” at the time of the financial report. Officers who sign off on financial statements that they know to be misguided are subject to criminal penalties, along side prison words.
Section 404 of the SOX Act of 2002 requires that keep an eye on and auditors decide inside of controls and reporting methods to make sure the adequacy of those controls. Some critics of the legislation have complained that the must haves in Section 404 may have a adversarial affect on publicly traded companies because of it’s eternally expensive to establish and take care of the essential inside of controls.
Section 802 of the SOX Act of 2002 contains the three laws that affect recordkeeping. The main provides with destruction and falsification of information. The second strictly defines the retention duration for storing knowledge. The third rule outlines the precise industry knowledge that companies need to store, which comprises virtual communications.
Besides the financial aspect of a industry, similar to audits, accuracy, and controls, the SOX Act of 2002 moreover outlines prerequisites for information generation (IT) departments when it comes to virtual knowledge. The act does not specify a set of business practices in this regard on the other hand instead defines which company knowledge need to be stored on file and for the best way long. The standards outlined throughout the SOX Act of 2002 do not specify how a industry must store its knowledge, merely that it’s the company IT department’s responsibility to store them.
