Sarbanes-Oxley Act
The Sarbanes-Oxley Act (SOX) is a federal law that was enacted in 2002 to protect investors from fraudulent accounting practices. The Act requires publicly traded companies to adhere to certain standards of financial reporting and corporate governance. It also established the Public Company Accounting Oversight Board (PCAOB) to oversee the auditing of public companies. SOX has been credited with restoring investor confidence in the wake of the Enron and WorldCom accounting scandals.
History of the Sarbanes-Oxley Act
The Sarbanes-Oxley Act was passed in response to the accounting scandals of the early 2000s. The Act was sponsored by Senator Paul Sarbanes and Representative Michael Oxley, and was signed into law by President George W. Bush in 2002. The Act was designed to restore investor confidence in the wake of the Enron and WorldCom accounting scandals, which had caused billions of dollars in losses for investors.
The Act requires publicly traded companies to adhere to certain standards of financial reporting and corporate governance. It also established the Public Company Accounting Oversight Board (PCAOB) to oversee the auditing of public companies. The Act also requires companies to disclose any material changes in their financial condition or operations, and to establish internal controls to ensure the accuracy of their financial statements.
Table of Comparisons
| Before SOX | After SOX |
|---|---|
| No independent oversight of auditors | PCAOB established to oversee auditors |
| No requirement to disclose material changes | Companies must disclose material changes |
| No requirement to establish internal controls | Companies must establish internal controls |
Summary
The Sarbanes-Oxley Act was passed in 2002 in response to the accounting scandals of the early 2000s. The Act requires publicly traded companies to adhere to certain standards of financial reporting and corporate governance. It also established the Public Company Accounting Oversight Board (PCAOB) to oversee the auditing of public companies. The Act has been credited with restoring investor confidence in the wake of the Enron and WorldCom accounting scandals. For more information about the Sarbanes-Oxley Act, visit the Securities and Exchange Commission website or the PCAOB website.
See Also
- Public Company Accounting Oversight Board (PCAOB)
- Securities and Exchange Commission (SEC)
- Enron Scandal
- WorldCom Scandal
- Internal Controls
- Financial Reporting
- Corporate Governance
- Auditing
- Material Changes
- Investor Confidence
