What is the Sarbanes-Oxley (SOX) Act of 2002?
Answer
The U.S. Congress passed the Sarbanes-Oxley Act of 2002 to help protect investors from fraudulent financial reporting by corporations. Its purpose was to "enhance corporate responsibility, enhance financial disclosures, and combat corporate and accounting fraud." In addition, the new law created the "Public Company Accounting Oversight Board" to oversee auditors (United States Securities and Exchange Commission, n.d.).
This Act, also known as the SOX Act of 2002 and the Corporate Responsibility Act of 2002, was a reaction to financial scandals involving publicly traded companies such as Enron Corporation, Tyco International plc, and WorldCom. The fraudulent activities "shook investor confidence in the trustworthiness of corporate financial statements and led many to demand an overhaul of decades-old regulatory standards" (Kenton, 2020).
To research more about the Sarbanes-Oxley Act, go to the Business Guide, click on Research, and choose the tab "One Search for Business Information."
Kenton, W. (2020, February 4). Sarbanes-Oxley (SOX) Act of 2002.
Investopedia. https://www.investopedia.com/terms/s/sarbanesoxleyact.asp
United States Securities and Exchange Commission. (n.d). The laws that govern the securities industry.
Investor.gov. https://www.investor.gov/introduction-investing/investing-basics/role-sec/laws
-govern-securities-industry#sox2002