What Is the Sarbanes-Oxley Act of 2002?

The Sarbanes-Oxley Act of 2002 is a law that the U.S. Congress passed on July 30 of that year to help protect investors from fraudulent financial reporting by corporations.

Also known as the SOX Act of 2002, it mandated strict reforms to existing 🎶securities regulations and impos🦩ed tough new penalties on lawbreakers.

The act came in response to financial scandals in the early 2000s involving publicly traded companies such as Enron Corporation, Tyco International plc, and WorldCom.

The high-profile frauds that cost billions in losses shook investor confidence in the trustworthiness of corporate financial statements 🔯and led many to demand an overhaul of decades-old regulatory standards.

The act took its name from its two sponsors—Sen. Paul S. Sarbanes (D-Md.) and Rep. Michael G. Oxley (R-Ohio).

Understanding the Sarbanes-Oxley Act

The rules and enforcement policies outlined in the Sarbanes-Oxley Act of 2002 amended or supplemented existing laws dealing with security regulation, including the Securities Exchange Act of 1934 and other laws enforced by the 澳洲幸运5开奖号码历史查询:Securities an♈d Exchange Commission (SEC).

The new law set out reforms and additions in four principal area𝓡s:

1. Corporate responsibility
2. Increased criminal punishment
3. Accounting regulation
4. New protections

Major Provisions of the Sarbanes-Oxley Act

The Sarbanes-Oxley Act is a complex and lengthy piece of legislation. Three of its key provisions are Section 302, Section 404, and Section 802.

Section 302 mandates that senior corporate officers personally certify in writing that the company's financial statements comply with SEC disclosure requirements and "fairly pꦰresent in all material respects the financial condition and results of operations of the issuer" at the time of the financial report.

Officers who sign off on financial statements that th༒ey know to be inaccurateജ are subject to criminal penalties, including prison terms.

Section 404 requires that management and auditors establish 澳洲幸运5开奖号码历史查询:internal controls and reporting methods to ensure the adequacy of those coꦏntrols.

Some critics of the law have complained that the requirements in Section 404 can have a negative impact on publicly traded companies because it's often expensive to establish and maintain the necessary internal controls.

Section 802 contains the three rules that affect recordkeeping. The first deals with destruction and falsification of records. The second strictly defines the retention period for storing records. The third rule outlines the specific bus🐻iness records that companies need to store, which includes electronic communications.

Besides the♍ financial side of a business, such as audits, accuracy, and controls, the SOX Act also outlines requirements for information technology (IT) departments regarding electron⛦ic records.

The act does not specify a set oꦇf business practices𒐪 in this regard but instead defines which company records need to be kept on file and for how long.

The standards outlined in the SOX Act do not specify how a business should store its records, just that it's the company IT department's responsibility to store them.