An Overview of the
Sarbanes-Oxley Act

The Public Company Accounting Reform and Investor Protection Act of 2002, popularly known as the Sarbanes-Oxley Act (SOX), was passed by the US Congress in response to unprecedented financial scandals in the early 2000s.

• It is a federal law establishing standards for publicly traded companies and their financial reporting practices.
• The act established new requirements for the accuracy and reliability of financial statements, including the requirement for independent audits.
• It created the Public Company Accounting Oversight Board (PCAOB) to oversee the audits of public companies and to ensure compliance with the act.
• The act imposes strict penalties for violations, including fines and imprisonment.
• It requires CEOs and CFOs to certify the accuracy of their company's financial statements and to report any material changes in financial condition.
• It prohibits insider trading and imposes strict penalties for those who engage in it.
• The act requires companies to disclose any conflicts of interest that may affect their financial reporting.
• It requires companies to adopt stronger internal controls to prevent fraud and ensure the accuracy of financial reporting.
• The act has been credited with increasing the transparency and accountability of publicly traded companies and helping to restore investor confidence in the wake of the accounting scandals of the early 2000s.