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A federal law called the Sarbanes-Oxley Act of 2002, usually referred to as SOX, was passed by the US Congress in response to many high-profile corporate accounting scandals in the early 2000s, including Enron and WorldCom.Â
The act introduced new or improved criteria for public business boards, management, and public accounting firms in order to increase the precision and dependability of corporate financial statements.
The key SOX requirements are that businesses create independent oversight boards for public accounting firms, have independent auditors confirm that these controls are effective, and establish and maintain internal control structures and procedures for financial reporting. The act also includes provisions to strengthen employee whistleblower rights and corporate executives' accountability for accounting discrepancies and other misdeeds.
The financial reporting and governance processes used by publicly traded corporations in the United States have been significantly impacted by SOX. While critics agree that the legislation has improved financial reporting's accuracy and transparency, they contend that the costs of compliance, particularly for smaller businesses, have been excessive.
The key SOX requirements are that businesses create independent oversight boards for public accounting firms, have independent auditors confirm that these controls are effective, and establish and maintain internal control structures and procedures for financial reporting. The act also includes provisions to strengthen employee whistleblower rights and corporate executives' accountability for accounting discrepancies and other misdeeds.
The financial reporting and governance processes used by publicly traded corporations in the United States have been significantly impacted by SOX. While critics agree that the legislation has improved financial reporting's accuracy and transparency, they contend that the costs of compliance, particularly for smaller businesses, have been excessive.
