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 imposed tough new pena🌄lties 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 co🧸st billions in losses shook investor confidence in the trustworthiness of corporate financial statements and led many to demand an overhaul of deca🎃des-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官方开奖结🏅果体彩网:Securities and Exchange Commission (SEC).

The new law ♚set out ref꧟orms and additions in four principal areas:

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 present in all ൩material 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 they know to be inaccurate are ❀subject to criminal penalties, including prison terms.

Section 404 requires that management and auditors establish 澳洲幸运5官方开奖结果体彩网:internal controls and 🤡reporting methods to ensure the adequacy of those controls.

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 business records that companies need to store, which includes elect🅷ronic communications.

Besides the financial side of a business, such as audits, accuracy, and controls, the SOX Act also outlines requirements for information technology (IT) departme🌜nts regarding🌃 electronic records.

The act does not specify a set of business practices in this regard but instead defines which company records need to be kept on file and for hꦐow 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.