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 SOX Act mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. The SOX Act was created in response to accounting malpractice in the early 2000s, when public scandals such as Enron Corporation, Tyco International plc, and WorldCom shook investor confidence in financial statements and demanded 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 Section 302 and Section 404.

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

In addition to the financial side of a business, such as the audits, accuracy and controls, the SOX Act also outlines requirements for information technology (IT) departments regarding electronic records. The SOX Act does not set forth a set of business practices in this regard but instead defines which company records need to be stored on file and for how long. It does not specify how a business should store its records, only that the IT department is responsible for storing them, according to standards outlined in the SOX Act.

Section 802 of the Act contains the three rules that affect record keeping. The first deals with destruction and falsification of records. The second strictly defines the retention period for storing records. The third rule outlines the specific types of business records that need to be stored, which includes electronic communications.

An Example of SOX Implementation

Many companies have been created to help other organizations comply with the SOX Act. Workiva Inc., for example, is one such company, providing a cloud-based productivity platform that links data and builds internal controls across global enterprises. On June 7th, 2016, Integrated DNA Technologies, Inc. announced that it was using Workiva's Wdesk platform to help it comply with the SOX Act.

While Integrated DNA Technologies is a private company and is not required by law to adhere to the SOX Act, the company said that it wanted to comply and build internal controls in order to provide transparency for its board of directors and internal auditors.

RELATED TERMS
  1. Independent Auditor

    A certified public accountant who examines the financial records ...
  2. Philadelphia Semiconductor Index ...

    A price-weighted index composed of 18 U.S. semiconductor companies ...
  3. Investment Company Act Of 1940

    Created in 1940 through an act of Congress, this piece of legislation ...
  4. Securities Act Of 1933

    A federal piece of legislation enacted as a result of the market ...
  5. Detective Control

    A type of internal control mechanism intended to find problems ...
  6. Certified Internal Auditor - CIA

    A certification offered to accountants who conduct internal audits. ...
Related Articles
  1. Small Business

    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. Insurance

    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. Small Business

    What is a Private Company?

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

    Semiconductors Reach Multi-year High (SOX, QCOM)

    Semiconductor stocks have hit a record high, as measured by the PHLX Semiconductor Index (SOX)
  5. Investing

    An Inside Look At Internal Auditors

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

    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. Investing

    Why Public Companies Go Private

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

    Learn How to Trade Semiconductor Stocks in 4 Steps (SOX, INTC)

    The enormously diverse semiconductor industry requires market players looking for exposure have specialized knowledge.
  9. Financial Advisor

    Examining A Career As An Auditor

    Stricter government regulations have put auditing professionals in demand.
  10. Managing Wealth

    Internal Auditor: Job Description & Average Salary

    Learn about what the job of internal auditor entails, as well as the median salary, education and certifications required and future career path.
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. 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 >>
  4. 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 >>
  5. What is meant by "full disclosure"?

    Most likely, the "full disclosure" you're talking about refers to rules put in place by the Securities and Exchange Commission ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  2. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  3. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  4. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  5. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  6. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
Trading Center