Sarbanes-Oxley Act (SOX)
Definition
US federal legislation enacted in July 2002 in direct response to Enron and WorldCom. Its key provisions include CEO/CFO certification of financial statements (Section 302), internal control assessment and external attestation (Section 404), and the creation of the PCAOB to oversee public-company auditors.
- Enacted
- July 2002
- Primary trigger
- Enron and WorldCom frauds
- Key provision: CEO/CFO certification
- Section 302
- Key provision: Internal control assessment
- Section 404
Common questions
What is the Sarbanes-Oxley Act and why was it created?+
The Sarbanes-Oxley Act is US federal legislation enacted in July 2002 after the Enron and WorldCom fraud scandals exposed serious gaps in financial oversight. It introduced new rules to make corporate leaders personally accountable for the accuracy of financial statements and strengthened the oversight of auditors who verify those statements.
What are the main requirements SOX places on company executives?+
Under Section 302, the CEO and CFO must personally certify that their company's financial statements are accurate and complete. They must also assess the company's internal controls and, under Section 404, have those controls evaluated and attested to by external auditors. This personal accountability was designed to deter fraud.
What is the PCAOB and what does it do?+
The Public Company Accounting Oversight Board (PCAOB) is an independent board created by SOX to oversee the auditors of public companies, adding a layer of oversight for public-company audits.
Related terms
- Confession as discovery trigger
- Unlike Enron and WorldCom, which were uncovered by auditors, journalists, or internal whistleblowers, Satyam was exposed by the chairman's voluntary confession letter....
- Forensic accounting
- The application of accounting, auditing, and investigative skills to matters likely to be disputed in a legal or regulatory forum. The word...
- Forensic audit
- An examination of an organisation's financial records and systems conducted specifically to gather evidence for legal proceedings. Distinguished from a regular audit...
- Fraud examination
- The process of resolving an allegation of fraud, from initial fact-finding through evidence collection to a conclusion about what happened and who...
- Litigation support
- Work done by a forensic accountant to assist counsel in civil or commercial disputes: calculating damages, modelling lost profits, or reviewing opposing...
- Mark-to-market accounting
- Recognising the fair value of a contract or asset on the balance sheet rather than historical cost. Enron applied mark-to-market to long-term...
- Net-worth method
- An indirect method of proving unreported income. The investigator establishes opening and closing net worth, adds known expenditures, subtracts documented income, and...
- PCAOB
- Public Company Accounting Oversight Board, established by SOX to set auditing standards and inspect audit firms performing public-company audits. It replaced the...
- SFIO
- Serious Fraud Investigation Office: a statutory body under India's Ministry of Corporate Affairs that investigates corporate frauds under the Companies Act 2013....
- Treadway Commission (COSO)
- The Committee of Sponsoring Organizations of the Treadway Commission, whose 1992 Internal Control framework became the global baseline for evaluating internal controls...
Explained in these topics
- Case Studies: Enron, WorldCom, and SatyamUS federal legislation enacted in July 2002 in direct response to Enron and WorldCom. Its key provisions include CEO/CFO certification of financial statements...
- Scope and History of Forensic AccountingUS legislation enacted in 2002 in direct response to Enron, WorldCom, and related frauds. Key provisions include CEO/CFO personal certification of financial st...