Sarbanes-Oxley Act Of 2002 - SOX

AAA

DEFINITION of 'Sarbanes-Oxley Act Of 2002 - SOX'

An act passed by U.S. Congress in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations. The Sarbanes-Oxley Act (SOX) mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. SOX was enacted in response to the accounting scandals in the early 2000s. Scandals such as Enron, Tyco, and WorldCom shook investor confidence in financial statements and required an overhaul of regulatory standards.

INVESTOPEDIA EXPLAINS 'Sarbanes-Oxley Act Of 2002 - SOX'

The rules and enforcement policies outlined by the SOX Act amend or supplement existing legislation dealing with security regulations. The two key provisions of the Sarbanes-Oxley Act are:

1. Section 302: A mandate that requires senior management to certify the accuracy of the reported financial statement
2. Section 404: A requirement that management and auditors establish internal controls and reporting methods on the adequacy of those controls. Section 404 had very costly implications for publicly traded companies as it is expensive to establish and maintain the required internal controls.

VIDEO

RELATED TERMS
  1. Stop Trading On Congressional Knowledge ...

    A bipartisan bill signed into law Apr. 4, 2012 by President Barack ...
  2. Detective Control

    A type of internal control mechanism intended to find problems ...
  3. Forensic Accounting

    Forensic Accounting utilizes accounting, auditing, and investigative ...
  4. Cook The Books

    A buzzword describing fraudulent activities performed by corporations ...
  5. Blue Sky Laws

    State regulations designed to protect investors against securities ...
  6. Lady Godiva Accounting Principles ...

    A theoretical set of accounting principles under which corporations ...
RELATED FAQS
  1. What are the GAAP standards for digital document storage?

    According to Sarbanes Oxley Act (SOX), companies are required to keep all documents that contain information about a company's ... Read Full Answer >>
Related Articles
  1. Investing

    Sarbanes-Oxley Act Of 2002 – SOX

    The Sarbanes-Oxley Act of 2002 is a legislative response to a number of corporate scandals that sent shockwaves through the world financial markets.
  2. Personal Finance

    Top 8 Ways Companies Cook The Books

    Find out more about the fraudulent accounting methods some companies use to fool investors.
  3. Fundamental Analysis

    How The Sarbanes-Oxley Era Affected IPOs

    After the infamous collapse of companies like Tyco, Enron and WorldCom, the government responded to try and prevent it from happening again.
  4. Professionals

    Ethical Issues For Financial Advisors

    Learn what to do when that devil on your shoulder begins to whisper.
  5. Options & Futures

    The Dangers Of Options Backdating

    This form of executive compensation can pose serious risks for investors.
  6. Markets

    Whisper Numbers: Should You Listen?

    These unofficial forecasts hold the potential for insider insight - and investment risk.
  7. Economics

    The SEC: A Brief History Of Regulation

    The SEC has continued to make the market a safer place and to learn from and adapt to new scandals and crises.
  8. Investing Basics

    Policing The Securities Market: An Overview Of The SEC

    Find out how this regulatory body protects the rights of investors.
  9. Economics

    Are Greece’s Worries Almost Over?

    Last week ended with the news that Greece and the European Union (EU) finance ministers struck a deal to temporarily extend the Greek bailout program.
  10. Stock Analysis

    Why Should You Invest In Stratasys Today?

    When Stratasys pre-announced its fourth-quarter earnings, management highlighted that its MakerBot acquisition was underperforming expectations.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center