Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 often shorten to SOX is a U.S. Federal Law. The bill was passed by President George Bush because the government needed improved regulations where higher management are required to confirm the truthfulness of the financial statements. “In addition, penalties for fraudulent financial activity are much more severe” (Salberg & Company, 2007). This bill came about because of companies such as Enron, WorldCom, and Adelphia. These companies caused a major scandal where investors lost billions of dollars and the public got scared lost confidence in the U.S. Securities Market. “The Act mandated a number of reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud, and created the Public Company Accounting Oversight Board, also known as the PCAOB” ("U.S. Securities And Exchange Commission", n.d.). The bill was named after two men that sponsored the legislation “Senator Paul Sarbanes and U.S. Representative Michael G. Oxley” (Salberg & Company, 2007). The act includes 11 sections that are enforced by the Securities and Exchange Commission. President George Bush commented after he signed the bill he stated, ''The era of low standards and false profits is over. No boardroom in America is above or beyond the law” (Bumiller, 2002).
Main Aspects of the Sarbanes-Oxley Act of 2002
Since the enactment of SOX, other countries like Germany and Japan have enacted the same laws. According to SEC (“U.S. Securities and Exchange Commission”, n.d.) there are 11 sections to the act. The features of this act are to protect the public from fraud with in corporations. The following is the list along with a short description of each.
1. Public Company Accounting Oversight Board - the original name of the act.
2. Auditor Independence – gives auditors a set of rules but also the independence to decide whether financial statements are up to code.