- Establishes the Public Company Accounting Oversight Board to ensure the registration of auditors, definition of compliance auditing procedures and practices, scrutiny and policing of quality control and conduct, and enforcement of compliance with the Sarbanes-Oxley Act
- Institutes standards for the independence of external auditors which addresses conflict of interest issues through the implementation of processes like auditing partner rotation policies, new auditor approval and auditor reporting requirements
- Requires that upper management take responsibility for ensuring correct, valid, and comprehensive corporate financial reporting and defines the penalties for non-compliance to create accountability at the level of the senior executives
- Enumerates improved reporting requirements of financial transactions through audits and reports on internal controls, thus assuring accurate disclosures and reports as well as timely conveyance of information regarding changes in financial condition
- Defines the code of conduct and conflict of interest disclosure for securities analysts and other similar standards intended to re-establish investor trust in analysts´ reports
- Establishes the conditions under which the Securities and Exchange Commission has the authority to censure and ban securities professionals from practicing as well as forbidding an individual to act as an advisor, dealer, or broker
- Defines standards for the conducting of research with the purpose of enforcing actions against violators by auditors and companies
- Mandates specific criminal penalties for activities such as record tampering or corporate fraud in regards to financial records, or obstructing investigations thereof, and offers some protection to individual whistle-blowers
- Increases criminal penalties for white-collar crimes and schemes as well as defines the failure to certify or negligently certify corporate financial reports as a criminal act
The Sarbanes Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act of 2002, is commonly referred to as Sarbox or SOX. This federal legislation is a response to numerous accounting and corporate scandals like that of WorldCom and Enron, which have resulted in serious public mistrust of accounting and reporting practices. The act establishes new and improved standards and regulations of financial reporting for all public companies, management, and accounting firms in the United States as well as the creation of the Public Company Accounting Oversight Board (PCAOB). The Sarbanes-Oxley Act consists of eleven titles that illustrate in detail the standards and obligations of responsible financial reporting and the criminal penalties for non-compliance.
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