The Sarbanes–Oxley Act reshaped financial reporting and corporate accountability in the United States. This lesson introduces why the law was passed, what it seeks to accomplish, and how it is organized.
The Sarbanes–Oxley Act of 2002, commonly called SOX or Sarbox, is a federal law governing financial record keeping and reporting. Congress enacted it after major corporate and accounting scandals, including Enron, WorldCom, Tyco International, Adelphia, and Peregrine Systems. These failures cost investors billions of dollars and weakened confidence in U.S. securities markets.
All flashcards
What is the Sarbanes–Oxley Act?
A 2002 U.S. federal law establishing requirements for corporate reporting, accountability, auditing, and oversight.
What does the PCAOB do under SOX?
It registers, inspects, and disciplines firms that audit public companies, and oversees audit standards.
What is the distinction between disclosure controls and ICFR?
Disclosure controls support complete and timely public filings; ICFR supports reliable financial reporting and statements.
What does SOX Section 806 protect?
It prohibits covered employers from retaliating against employees who make protected reports of suspected violations.
Why can SOX compliance costs weigh more heavily on smaller companies?
Many assessment costs are relatively fixed, so they can consume a larger share of smaller firms’ resources.
Quiz questions
Which responsibility did SOX assign to the PCAOB?Answer: Registering and inspecting firms that audit public companies.
What conflict does Title II of SOX seek to limit?Answer: An audit firm providing certain non-audit services to its audit client.
What must management do under Section 404 of SOX?Answer: Report on and assess the effectiveness of internal control over financial reporting.
Which statement describes Section 906 of SOX?Answer: It requires certain officers to certify reports and provides criminal penalties for knowing false certification.
Where is a Section 806 retaliation complaint initially filed?Answer: With the Occupational Safety and Health Administration.
Based on the Wikipedia article Sarbanes–Oxley Act, licensed CC BY-SA 4.0. Adapted into a summary, flashcards and quizzes.