Sarbanes-Oxley Act Of 2002 - SOX

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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.

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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.

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