The Sarbanes-Oxley Act of 2002. frequently abbreviated as SOX. is a legislative act passed by Congress in response to the Enron and WorldCom fiscal dirts. The primary intent of SOX is to protect stockholders from mistakes or deceitful coverage by the company they have invested in. The Sarbanes-Oxley act is enforced by the Securities and Exchange Commission. a section dedicated to guaranting conformity to SOX from all houses. and is besides responsible for revising commissariats of the act in order to maintain it current and up to day of the month. The Enron fiscal dirt showed the populace and their representatives in Congress that conformity with current describing policies were ill followed. if non ignored wholly. Enron. an energy trading company. was believed to be one of the most financially stable companies to put in. so when it was discovered that it had been fraudulently describing its Numberss. many investors lost the money they had placed in the company. It became evident that a new set of ordinances needed to be passed. with more up-to-date policies sing electronic coverage. Since engineering was progressing at a rapid gait. it was important that the new policies be able to germinate with the electronics. or they would shortly be outdated. Senator Paul Sarbanes and Represenatative Michael Oxley partnered to outline the act prior to 2002.
Their end was to develop statute law that would protect consumers. chiefly investors. from companies who would fraudulently describe accounting Numberss to avoid revenue enhancements. ordinances. or other barriers that kept the company from maximising it’s net incomes. The SOX Act holds company CEO’s and CFO’s responsible for the information presented by their company in fiscal statements. It created new criterions of answerability for corporations every bit good as punishments of those criterions of answerability are non met. SOX established new fiscal coverage criterions. SOX besides addressed the manner. and changed the manner. corporate boards trade with their fiscal hearers. The hearers for Enron. Arthur Andersen. were ab initio found complicit in the Enron dirt. which caused the break-up and bankruptcy of the company. The Supreme Court. nevertheless. overturned that determination a few old ages subsequently. but non in clip to salvage the company. All companies. harmonizing to SOX. must supply a year-end study about the internal controls they have in topographic point and the effectivity of those internal controls. A company found to be in misdemeanor of SOX ordinances is met with really stiff punishments. False coverage endangers investor’s difficult earned money.
These punishments vary with the portion of the act that is violated. and scope from big pecuniary mulcts. to suspension from the stock exchange. to the ultimate penalty of being shut down due to bankruptcy. The punishments were designed to be rough to deter aberrance from the regulations set frontward in Sox. and to forestall another immense dirt like Enron. Although progressive. the Sarbanes- Oxley Act provided security to the general populace when puting money. The per centum of companies following with the act has remained highly high due to it’s adaptability in a quickly progressing technological environment. There is still much room for betterment in the coverage procedure but the Sarbanes- Oxley Act of 2002 was a good starting point.