SarbanesOxley

The Sarbanes-Oxley Act of 2002, commonly known as Sarbanes-Oxley or SOX, is a United States federal law enacted to restore investor confidence in corporate disclosures following high-profile accounting scandals in the early 2000s. The act imposes stricter oversight on public companies, accounting firms, and corporate governance practices to improve the accuracy and reliability of corporate financial reporting.

Key provisions include the creation of the Public Company Accounting Oversight Board (PCAOB) to oversee audits of public companies; strengthened auditor independence rules; requirements for internal controls over financial reporting (Section 404) and management assessment; CEO and CFO certification of financial statements; enhanced disclosure obligations; stricter penalties for fraudulent financial reporting; and extended whistleblower protections.

History and impact: The act was enacted by Congress and signed into law in 2002 in response to scandals involving Enron, WorldCom, and others. It became effective in phases through 2004, with larger issuers required to assess and report on internal controls annually. The law also reshaped audit firms' oversight and public-company governance, prompting reforms in board independence, audit committees, and financial disclosures.

Criticism and ongoing influence: While proponents credit SOX with improving financial integrity and investor protection, critics point to high compliance costs, complexity, and burdens on smaller firms. The act has influenced international corporate-governance standards and spurred regulatory developments in financial reporting and disclosure.