The Sarbanes-Oxley Act (SOX) is a federal law that was enacted in 2002 to improve corporate accountability, enhance financial reporting, and protect investors from accounting fraud. The law was named after Senator Paul Sarbanes and Representative Michael Oxley, who sponsored the bill in response to a series of high-profile corporate scandals, such as Enron and WorldCom.
The SOX Act applies to all publicly traded companies in the United States, including foreign companies listed on US stock exchanges, and requires them to comply with specific requirements related to financial reporting, corporate governance, and internal controls. The law is designed to ensure that companies maintain accurate and transparent financial reporting and that their internal controls are effective in detecting and preventing fraud.
Some key provisions of the SOX Act include:
CEO and CFO certification: The CEO and CFO of a publicly traded company are required to certify the accuracy of the company’s financial statements.
Audit committee independence: Publicly traded companies must have an independent audit committee to oversee the company’s financial reporting.
Internal controls: Publicly traded companies must establish and maintain effective internal controls over financial reporting.
Whistleblower protection: The SOX Act provides protection to employees who report violations of securities laws or other fraudulent activity.
Criminal penalties: The SOX Act imposes significant criminal penalties for securities fraud, including fines and imprisonment.
The SOX Act has had a significant impact on corporate governance and financial reporting in the United States. While it has helped to improve transparency and accountability, some critics argue that it has also imposed significant costs on companies and has made it more difficult for small businesses to go public.
