What Is Sarbanes Oxley?

When the Enron and MCI scandals broke, it became clear to the US government as well as everyone else that something needed to be done to prevent financial abuses from harming the public. A bipartisan team of legislators led by Senator Paul Sarbanes and Representative Michael G. Oxley put together the Sarbanes Oxley Act, also titled the Public Company Accounting Reform and Investor Protection Act of 2002, and more manageably called SOX for short. It was overwhelmingly passed by the House of Representatives, and the Senate voted unanimously to pass the Sarbanes Oxley bill.

The Sarbanes Oxley Act was signed into federal law on July 30, 2002. Its primary purpose is to protect investors by making corporate information released about accounting and finance more accurate and reliable. It addresses issues like the establishment of a public company, creation of an accounting oversight board, auditor independence, corporate responsibility, and enhanced financial disclosure.According to President Bush, Sarbanes Oxley includes 'the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt.'

That may be true, but it's also one of the most complex and difficult to understand reforms ever passed. It covers topics such as:PERSONAL LOANs by the company to executive officers or directors,Financial report certification,More timely insider trading reporting, Strong limitations on insider trades.

Public reporting of top executive real compensation and company profits Auditing independence Personal accountability by the chief officers of the company, backed up by criminal and civil penalties including serious jail time and financial penalties on individuals who misstate financial statements and commit securities violations.You can see how a bill covering so many different topics might be seen as discouragingly complex.