The Sarbanes-Oxley Act of 2002(SOX) is a federal law that sets standards for all United States public company boards, management and accounting firms. The law was enacted as a reaction to a number of corporate accounting scandals including Enron and WorldCom. The sections of the bill cover responsibilities of a public corporation's board of directors, add criminal penalties for certain misconduct, and set new expectations for public auditors.
The following are the major provisions of the act:
1. Public Company Accounting Oversight Board (PCAOB)
Establishes the Public Company Accounting Oversight Board, to provide independent oversight of public accounting
2. Auditor Independence
Establishes standards for external auditor independence to limit conflicts of interest, audit partner rotation, and restricts auditing companies from providing non-audit services (e.g., consulting) for the same clients.
3. Corporate Responsibility
Mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports.
4. Corporate and Criminal Fraud Accountability
Describes specific criminal penalties for manipulation, destruction or alteration of financial records or other interference with investigations, while providing certain protections for whistle-blowers and increases the criminal penalties associated with white-collar crimes and conspiracies.