Sarbanes-Oxley Act

The Sarbanes-Oxley Act was enacted in the United States Federal Court on July 30, 2002. It is named after the two sponsoring politicians U.S. Representative Michael G. Oxley (R-OH) and U.S. Senator Paul Sarbanes (D-MD). It is also referred to as Sarbox, SOX or Sarbanes-Oxley. The statement of the act is to establish new or better standard for each and every public organization board in the U.S., administration and public accounting organizations. It also safeguards the interest of employees by providing wage protection.

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After passing of SOX, the financial information accuracy must be individually certified by the top management of any public company. The act makes no distinction against anyone. All public companies are covered under the Sarbanes-Oxley Act. In consequence of this certification, top management becomes individually accountable for the accurateness of fiscal disclosure by the company. In case of fraudulent financial practices, the penalties are way more severe than what they were before. The act is an effective form of employer regulation by supervision of commercial fiscal statements.

There are a total of 11 sections (Titles) in the Sarbanes-Oxley Act. They extend from top management responsibilities to treatment of offences in terms of criminal penalties as well as employee protections in case of unfair wage practices. The passage of the bill came at a time when the corporate world faced the aftermath of numerous major accounting and corporate scandals.

The act also provides for wage protections through various sections. The 11 Titles of the act are as follows:-

  1. Public Company Accounting Oversight Board (PCAOB)

    Title #I – The Public Company Accounting Oversight Board is established through this title.

  2. Auditor Independence

    Title #II – This title is responsible for establishing outside examiner autonomy in order to avoid conflict of interests.

  3. Corporate Responsibility

    Title #III – It promotes employer regulation by making individual responsibility on the part of senior executives mandatory for every public company.

  4. Enhanced Financial Disclosures

    Title #IV – It details the reporting needs for corporate officers. These include pro-forma statistics, stock transactions and off-balance sheet transactions.

  5. Analyst Conflicts of Interest

    Title #V – This act is designed to facilitate restoration of financier confidence in securities analysts reporting.

  6. Commission Resources and Authority

    Title #VI – It establishes SEC authority in barring certain securities experts from operation.

  7. Studies and Reports

    Title #VII – Under this Title, the SEC and Comptroller General are required to conduct studies and list findings.

  8. Corporate and Criminal Fraud Accountability

    Title #VIII – It defines penalties for alteration, destruction or manipulation of financial records.

  9. White Collar Crime Penalty Enhancement

    Title #IX – It provides increased and more severe penalties in cases of white collar conspiracies.

  10. Corporate Tax Returns

    Title #X – It holds the Chief Executive Officer (CEO) responsible for signing company tax returns.

  11. Corporate Fraud Accountability

    Title #XI – It details the penalties associated with specific criminal offences in case of record tampering and corporate fraud.