The Sarbanes-Oxley Act Summary
The Sarbanes-Oxley Act (SOX) was enacted in 2002 as a response to the accounting scandals in the early 2000s. Numbers of major corporate and accounting scandals, such as Enron, Tyco International, WorldCom, and others, shook public confidence and cost investors billions of dollars when companies collapsed. The Sarbanes-Oxley Act is a federal law that set new standards for the United States public company boards, management, and public accounting firms ("Sarbanes–oxley Act", 2013). The two key provisions of the Sarbanes-Oxley Act are section 302 and section 404. According to Section 302, top management within a firm must certify individually the accuracy of financial information ("Sarbanes-Oxley Act Section 302", 2003). According to the Section 404, it requires that management and auditors establish internal controls and reporting methods on the adequacy of those controls. Financial issues are required to be published in a company’s annual reports. In addition, penalties for fraudulent financial activity are much more severe. A CEO or CFO who
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The Act holds a company 's executive officers and financial officers responsible for the accuracy of the company’s financial information. Also it requires companies to report clear financial information and ensure their financial records are valid. Moreover, the Act gives the external auditor more access to the financial data and protects corporate whistle blowers (Magloff, 2013). Any false or misleading information in the company’s financial statements is considered as a crime. Public companies are required to comply with the Act. The Section 404 of the Sarbanes-Oxley Act creates additional costs for a company for audits and internal control software or plans. Therefore, the Act results a barrier for foreign companies to operate within the United States and some small-sized and medium-sized companies consider not to go public (Slaughter,
The Act holds a company 's executive officers and financial officers responsible for the accuracy of the company’s financial information. Also it requires companies to report clear financial information and ensure their financial records are valid. Moreover, the Act gives the external auditor more access to the financial data and protects corporate whistle blowers (Magloff, 2013). Any false or misleading information in the company’s financial statements is considered as a crime. Public companies are required to comply with the Act. The Section 404 of the Sarbanes-Oxley Act creates additional costs for a company for audits and internal control software or plans. Therefore, the Act results a barrier for foreign companies to operate within the United States and some small-sized and medium-sized companies consider not to go public (Slaughter,