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Regulation

Sarbanes-Oxley Act (SOX)

Also Known As SOX
Financial and Securities Regulation

The Sarbanes-Oxley Act is a United States federal law placing requirements on the financial record keeping and reporting of public companies, their boards, their management and the accounting firms that audit them. Congress passed it after the Enron and WorldCom accounting scandals exposed auditor conflicts of interest and weak corporate governance, and President George W. Bush signed it into law on July 30, 2002 as Public Law 107-204, authored by Senator Paul Sarbanes and Representative Michael Oxley. Its eleven titles created the Public Company Accounting Oversight Board to oversee firms auditing public companies, required chief executives and chief financial officers to personally certify the accuracy of financial statements, restricted the consulting services an auditor may sell its own audit client, and enhanced criminal penalties for corporate fraud. This description is adapted from Wikipedia contributors under CC BY-SA 4.0; changes were made. https://creativecommons.org/licenses/by-sa/4.0/

Facts
Era
United States, signed into law July 30, 2002 (Public Law 107-204) 1
Promulgated By
The 107th United States Congress, authored by Senator Paul Sarbanes and Representative Michael Oxley, signed by President George W. Bush; enforced by the Securities and Exchange Commission and the Public Company Accounting Oversight Board it created 1
Jurisdiction Scope
United States public companies, their boards, management, and the public accounting firms that audit them 1
Regulatory Domain
Corporate financial reporting, auditor independence and public company accounting oversight 1
Classification
Legal Status
in-force 1
Era
Era (category)
21st Century (2000-Present) 1
Learn More
How Enron Rewrote the Rules of Corporate Bookkeeping

This article records tradition as it has been passed down and reported. Its sources are not yet part of the atlas's verified catalogue.

Before October 2001, an American company could hide enormous liabilities from its own shareholders using an accounting device called a special purpose entity, a separate legal shell the parent company technically did not control on paper, whatever it controlled in practice. Enron, at the time the seventh largest company in the United States by revenue, used exactly this device to keep billions of dollars in debt off its own balance sheet, with its outside auditor, Arthur Andersen, signing off the whole way. When the structure collapsed, Enron collapsed with it, followed within months by WorldCom, and Arthur Andersen itself, an accounting firm that had existed for eighty-nine years, did not survive the year after that. Congress moved with a speed federal financial regulation rarely shows: Senator Paul Sarbanes and Representative Michael Oxley authored a bill that passed the House 423 to 3 and the Senate 99 to 0, and President George W. Bush signed it on July 30, 2002, less than a year after Enron first admitted its accounting was fictional. The Sarbanes-Oxley Act did not just punish what Enron had done. It rebuilt the machinery meant to catch the next one. It created the Public Company Accounting Oversight Board, a body with no equivalent before 2002, to inspect and discipline the firms that audit public companies, taking that job away from the accounting profession policing itself. It required a company chief executive and chief financial officer to personally sign their own name to the accuracy of the financial statements they filed, turning what had been a corporate assertion into a personal one with personal criminal exposure attached. It restricted how much consulting work an audit firm may sell to the very company it is supposed to be auditing without bias, the exact conflict of interest that let Arthur Andersen keep collecting Enron consulting fees while blessing Enron books. None of these provisions prevent fraud outright. What they do is remove the deniability that let Enron happen: no single named individual signed off on the deception, no single firm had a clean incentive to catch it, and no single watchdog existed to check the watchdogs. Twenty years later, the corporate scandals that still happen tend to look different in kind, not because dishonesty disappeared, but because the specific blind spot Enron exploited got closed.

Connections

Associated With

Dodd-Frank and Sarbanes-Oxley are the two landmark post-scandal United States financial and corporate-governance reform statutes, Dodd-Frank following the 2008 crisis and Sarbanes-Oxley following the Enron collapse.

The Sarbanes-Oxley Act amended the federal securities laws that include the Securities Act of 1933.

Authored By

Michael Oxley, Jurists

House sponsor.

Source Sarbanes-Oxley Act (Wikipedia)
Paul Sarbanes, Jurists

Senate sponsor.

Source Sarbanes-Oxley Act (Wikipedia)

In Legal System

Source Sarbanes-Oxley Act (Wikipedia)

Long-Form Articles

Sources
1. Sarbanes-Oxley Act (Wikipedia)
  • Introduction
    The act, Pub. L. 107-204 (text) (PDF), 116 Stat. 745, enacted July 30, 2002, also known as the "Public Company Accounting Reform and Investor Protection Act" (in the Senate) and "Corporate and Auditing Accountability, Responsibility, and Transparency Act" (in the House) and commonly abbreviated SOX or Sarbox, contains eleven sections that place requirements on all American public company boards of directors and management and public accounting firms.
  • Lead paragraph
    The Sarbanes-Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations.
  • Authored By: Paul Sarbanes
  • Authored By: Michael Oxley
  • In Legal System: Common Law
View the Source
Sarbanes-Oxley Act (Wikipedia)
In Group: United States Financial and Securities Statutes and Rules, Introduction, sentence 1
Quote, In Group: United States Financial and Securities Statutes and Rules, Introduction, sentence 1
The Sarbanes-Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations.
View the Source

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