Sarbanes-Oxley

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act (SOX) was signed into law after several major companies concocted sophisticated financial scandals; Enron, Arthur Anderson, and WorldCom were center stage for this legislation. The SOX act provides rules established by the federal government solely aimed to discourage fraudulent accounting practices and corruption. SOX was developed to enforce sound business practices while imposing severe penalties for those gaming the system, yet protecting the interest of shareholders and employees. The proposed purpose of SOX is to protect investors by improving the accuracy of disclosure, imposing stricter guidelines for audits, preventing insider trading, adapting stronger internal company controls, and increasing the penalties for individuals who fraud investors (Hewitt, 2008).

SOX is best defined not as a bill or piece of legislation, but as a process which mandated major reforms be implemented as quickly as possible. SOX effectively became law in July of 2002 as penal law 18 U.S.C. #1348 (Zameeruddin, 2005). This schedule specified as quickly as possible and often was encouraged as within 30 working days. This act pushed forward the most ready available reform proposals affecting publically traded companies; many of which existed for years without political intervention (Division of Corporation Finance, 2002). Included in the SOX act of 2002 were new levels of auditor independence coupled with accountability (both personal and business) for Chief Executive Officers (CEO) and Chief Financial Officers (CFO). Couple this with corporate board accountability, increased criminal and civil penalties, and better disclosure (Zameeruddin, 2009).

Provisions of the act require both U.S. based companies and foreign organizations file annual reports with the Securities and Exchange Commission (SEC). Title I of the SOX act state that a new over site committee will be appointed to oversee dealings and is called the Public...