Sarbanes-Oxley Act

The Sarbanes-Oxley Act (SOX) is a United States federal law enacted on July 30, 2002, to protect investors from fraudulent financial reporting by Corporations. It was passed in response to major corporate scandals, including those affecting Enron and WorldCom, which shook public confidence in the integrity of financial markets.

Key provisions of the Act include:

• Increased Financial Disclosures: Companies must provide accurate financial statements and disclosures, ensuring transparency in financial reporting.
• Corporate Responsibility: Senior executives must take personal responsibility for the accuracy of financial reports.
• Internal Controls: Companies are required to establish and maintain internal controls over financial reporting, with annual assessments of their effectiveness.
• Auditor Independence: Rules are set to ensure that Auditors remain inDependent from the companies they Audit, prohibiting certain non-Audit services.
• Whistleblower Protection: The Act provides protections for whistleblowers who report fraudulent activities.

Examples of cases related to the Sarbanes-Oxley Act include:

• Enron: The collapse of Enron in 2001 highlighted the need for reforms, leading to the creation of SOX. The company used accounting loopholes and special purpose entities to hide debt.
• WorldCom: In 2002, WorldCom disclosed $3.8 billion in fraudulent accounting, prompting further scrutiny and resulting in significant penalties.