Sarbanes-Oxley Act Of 2002 - SOX

Loading the player...

What is the 'Sarbanes-Oxley Act Of 2002 - SOX'

The Sarbanes-Oxley Act of 2002 (SOX) is 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.

BREAKING DOWN '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.

RELATED TERMS
  1. Independent Auditor

    A certified public accountant who examines the financial records ...
  2. Detective Control

    A type of internal control mechanism intended to find problems ...
  3. Philadelphia Semiconductor Index ...

    A price-weighted index composed of 18 U.S. semiconductor companies ...
  4. Aggressive Accounting

    The practice of misreporting income statement and balance sheet ...
  5. Investment Company Act Of 1940

    Created in 1940 through an act of Congress, this piece of legislation ...
  6. Corporate Governance

    The system of rules, practices and processes by which a company ...
Related Articles
  1. Markets

    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. Investing

    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.
  3. Investing

    An Inside Look At Internal Auditors

    Find out why these number crunchers are part of every chief officer's dream team.
  4. Investing

    What is a Private Company?

    A private company is any corporation that does not have shares publicly traded in the equity markets.
  5. Trading

    Detecting Financial Statement Fraud

    Find out how to tell if a company is manipulating its financial data, so you don't invest in the next Enron.
  6. ETFs & Mutual Funds

    The Semiconductor Sector is on the Verge of a Breakout (SMH, INTC)

    The semiconductor sector may be on the verge of a major breakout that provides market leadership in 2016.
  7. Trading

    Why Public Companies Go Private

    Privatization can give management more time to make money for investors, but at what cost?
  8. Managing Wealth

    Common Interview Questions for Accounting Research Managers

    Learn how to ace an interview for an accounting research manager position, including anticipating the questions and formulating winning answers.
  9. Markets

    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.
  10. Investing

    The Enron Collapse: A Look Back

    This was one of the most complex bankruptcies in U.S. history. Ten years later, we look back at what happened and how it permanently impacted the financial markets.
RELATED FAQS
  1. What is the difference between the Sarbanes-Oxley Act and the Dodd-Frank Act?

    Learn about the differences between the Sarbanes-Oxley Act and the Dodd-Frank Act, and understand the reasons why each bill ... Read Answer >>
  2. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    Learn the effects the Sarbanes-Oxley Act has on corporate governance in the United States, including strict disclosures, ... Read Answer >>
  3. How did Sarbanes Oxley (SOX) affect the rules and regulations for account reconciliation?

    Read about the various regulations and impositions of the Sarbanes-Oxley Act of 2002 on account reconciliation for publicly ... Read Answer >>
  4. Where did market to market (MTM) accounting come from?

    Find out how mark to market accounting originated and how it has been forced to evolve to eliminate subjectivity from financial ... Read Answer >>
  5. How are investment banks regulated in the United States?

    Read about the extensive regulations placed on investment banks in the United States, beginning with the Glass-Steagall Act ... Read Answer >>
  6. 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 Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center