Sarbanes-Oxley Act of 2002

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The Sarbanes-Oxley Act, also called SOX or Sarbox, is U.S. legislation enacted on July 30, 2002 by President George W. Bush to establish new or enhanced standards for all U.S. public company boards, management, and public accounting firms. The act set up a bureaucracy for distributing and enforcing standards. It made senior executives liable for the accuracy of financial reporting and demanded more corporate disclosure.[1]

It is also known as the Public Company Accounting Reform and Investor Protection Act of 2002.

Named after its sponsors Senator Paul Sarbanes (D-MD) and Representative Michael G. Oxley (R-OH), the Act was meant to help restore the public's confidence in American business, which had suffered a blow as a result of accounting scandals at Enron, Tyco, Adelphia and Worldcom. The scandals cost investors billions of dollars and eroded confidence in the securities markets.

It also created a new regulator for the accounting industry called the Public Company Accounting Oversight Board.

The law was controversial from the start; smaller firms in particular complained that the costs and time needed for compliance were overly burdensome.[2] [3]

A report released by The Committee on Capital Markets Regulation in November 2006 argued that the U.S. - New York City in particular - would lose its status as the financial center of the world because more companies were choosing to place their initial public offerings in countries where regulations were less strict. Sarbanes-Oxley was blamed for this.[4]

References

  1. Taking the Over the Counter Route to U.S.. Barron's.
  2. Sarbanes-Oxley: Five Years Under the Thumb. The Economist.
  3. Kerry, Snowe Praise Sarbanes-Oxley Extension. Foxbusiness.com.
  4. Sarbanes-Oxley: It's Delicious and (Mostly) Good for You. Conde Nast Portfolio.