The Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley act of 2002 was passed following the spate of cases involving misleading representation of corporate financial status and manipulation of company books, which came to light over the previous two to three years. The most notable cases were Enron, WorldCom and Tyco.

The aim of the bill is to protect investors by improving the accuracy and reliability of corporate disclosures and placing accountability for this on the organization’s executives. This is a US based law but many European countries are putting in place similar legislation.

The act, known as SOX, implements tight controls in corporate financial and accounting processes, considerably affecting how companies go about their business.

The Sarbanes-Oxley act obligates eleven broad areas of responsibility as follows:

1. Public Company Accounting Oversight Board
2. Auditor Independence
3. Corporate Responsibility
4. Enhanced Financial Disclosures
5. Analyst Conflict of Interest
6. Commission Resources and Authority
7. Studies and Reports
8. Corporate and Criminal Fraud Accountability
9. White-collar Crime Penalty Enhancements
10. Corporate Tax Returns
11. Corporate Fraud and Accountability

Most of these areas define controls and practices to be followed by senior management, financial officers and accountants. The controls and practices are varied and cover such areas as penalties, fraudulent activity, improper influencing, conflict of interests, qualifications of personnel and more.

Implementing SOX