Sarbanes-Oxley

The common term for the Public Company Accounting Reform and Investor Protection Act of 2002. This set of laws significantly changed accounting and audit standards for public companies in order to improve the accuracy of financial disclosures and protect investors from corporate fraud. The act has significantly increased accounting and audit costs for companies but has restored some investor confidence in corporations. Some major components of the act include:

  • certification of financial reports by CEOs and CFOs
  • increased disclosures of equity trades by company insiders
  • increased independence of auditors from corporate influence or conflicts
    of interest due to ownership or other services
  • bigger criminal and civil penalties (fines and jail time) for corporate
    executives who knowingly misreport financials
  • the prohibition of personal loans from a company to a CEO or corporate
    director
  • M. Doden

    Also referenced as “SOX”. Note that this was primarily implemented for LARGE businesses, not small “mom and pop” companies. Radical changes filtered quickly down to the lower ranks of everyday accounting procedures.