Overview of the Sarbanes-Oxley Act.
These outrages brought about a decrease in public confidence in bookkeeping and revealing practices.
The Sarbanes-Oxley Act of 2002 is a United States government law passed in light of the new major corporate and bookkeeping outrages including those at Enron, Tyco International, and WorldCom (presently MCI).
Named after support Senator Paul Sarbanes (D-Md.) and Representative Michael G.
Oxley (R-Oh.), the Act was endorsed by the House by a vote of 423-3 and by the Senate 99-0.
The regulation is wide-going and sets up new or improved principles for all U.S. public organization Boards, Management, and public bookkeeping firms.
The first and most significant piece of the Act sets up another semi-public office, the Public Company Accounting Oversight Board, which is accused of administering and training bookkeeping firms in their jobs as inspectors of public organizations.
A portion of the significant arrangements of the Sarbanes-Oxley Act include:
- Accreditation of monetary reports by CEOs and CFOs.
- Reviewer freedom, remembering by and large boycotts for specific kinds of work for review customers and pre-accreditation by the organization's Audit Committee of any remaining non-review work.
- A prerequisite is that organizations recorded on stock trades have completely free review councils that manage the connection between the organization and its examiner.
- Altogether longer greatest prison sentences and bigger fines for corporate chiefs who intentionally and unyieldingly misquote fiscal summaries, albeit most extreme sentences are to a great extent insignificant because judges, by and large, keep the Federal Sentencing Guidelines in setting real sentences.
- Representative insurances permit those corporate extortion informants who document grumblings with OSHA within 90 days, to win restoration, back pay and advantages, compensatory harms, reduction orders, and sensible lawyer charges and expenses.
The Sarbanes-Oxley Act, also known as SOX, is a federal law passed in the United States in response to the major corporate and accounting scandals at companies such as Enron, Tyco International, and WorldCom.
Senator Paul Sarbanes and Representative Michael G. Oxley were the bill's sponsors.
SOX sets up new or improved standards for all U.S.Boards of directors, management, and public accounting firms are all examples of public companies.
One of the key provisions of the act is the creation of the Public Company Accounting Oversight Board, which is responsible for overseeing and regulating accounting firms in their roles as auditors of public companies.
Other significant provisions of the act include:
- Requiring CEOs and CFOs to certify the accuracy of financial reports.
- Establishing independence standards for auditors, including bans on certain types of work for audit clients and pre-approval by the company's audit committee for any remaining non-audit work.
- Mandating that companies listed on stock exchanges have independent audit committees to oversee the relationship between the company and its auditor.
- Increasing penalties for corporate executives who intentionally and knowingly misstate financial statements, including longer prison sentences and larger fines
- Providing whistleblower protections for employees who file complaints with OSHA within 90 days, including the ability to receive restoration, back pay and benefits, compensatory damages, injunctive relief, and reasonable attorney's fees and expenses.
The Sarbanes-Oxley Act also includes several other provisions designed to increase transparency and accountability in financial reporting.
Some of these include:
- Requiring companies to maintain internal controls and procedures to ensure the accuracy of their financial statements.
- Establishing standards for the preservation of financial records.
- Requiring companies to report material changes in their financial condition or operations promptly.
- Prohibiting insider trading by officers, directors, and other key employees
- Increasing the penalties for securities fraud, including civil and criminal penalties for companies and individuals who engage in fraudulent activities
- Providing for an increase in the number of independent directors on a company's board of directors.
Additionally, SOX requires public companies to have an independent auditor review their internal control over financial reporting and file a report on the effectiveness of their internal control over financial reporting with the SEC.
Overall, The Sarbanes-Oxley Act aims to enhance the accuracy, reliability and transparency of financial information and to make it more difficult for companies to conceal fraud and deceitful activities.
It is considered one of the most important laws in the United States to improve the accountability, transparency and governance of public companies.