Sarbanes–Oxley Act
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The Sarbanes–Oxley Act of 2002 is a
United States federal law The law of the United States comprises many levels of codified and uncodified forms of law, of which the most important is the nation's Constitution, which prescribes the foundation of the federal government of the United States, as well as ...
that mandates certain practices in financial record keeping and reporting for corporations. The act, (), also known as the "Public Company Accounting Reform and Investor Protection Act" (in the Senate) and "Corporate and Auditing Accountability, Responsibility, and Transparency Act" (in the House) and more commonly called Sarbanes–Oxley, SOX or Sarbox, contains eleven sections that place requirements on all U.S.
public company A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange (l ...
boards of directors and management and public accounting firms. A number of provisions of the Act also apply to privately held companies, such as the willful destruction of evidence to impede a federal investigation. The law was enacted as a reaction to a number of major corporate and accounting scandals, including
Enron Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional compani ...
and
WorldCom MCI, Inc. (subsequently Worldcom and MCI WorldCom) was a telecommunications company. For a time, it was the second largest long-distance telephone company in the United States, after AT&T. Worldcom grew largely by acquiring other telecommunic ...
. The sections of the bill cover responsibilities of a public corporation's board of directors, add criminal penalties for certain misconduct, and require the
Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
to create regulations to define how public corporations are to comply with the law.


Background

In 2002, Sarbanes-Oxley was named after bill sponsors U.S. Senator
Paul Sarbanes Paul Spyros Sarbanes (; February 3, 1933 – December 6, 2020) was an American politician and attorney. A member of the Democratic Party from Maryland, he served as a member of the United States House of Representatives from 1971 to 1977 ...
( D- MD) and U.S. Representative
Michael G. Oxley Michael Garver Oxley (February 11, 1944 – January 1, 2016) was an American Republican politician and attorney who served as a U.S. Representative from the 4th congressional district of Ohio. Early life and career Oxley was born in Findl ...
( R- OH). As a result, to be "SOX compliant," top management must individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. The act increased the oversight role of boards of directors and the independence of the outside auditors who review the accuracy of corporate financial statements. The bill was enacted as a reaction to a number of major corporate and accounting scandals, including those affecting
Enron Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional compani ...
,
Tyco International Tyco International plc was a security systems company incorporated in the Republic of Ireland, with operational headquarters in Princeton, New Jersey, United States (Tyco International (US) Inc.). Tyco International was composed of two major b ...
, Adelphia,
Peregrine Systems Peregrine Systems, Inc. was an enterprise software company, founded in 1981, that sold enterprise asset management, change management, and ITIL-based IT service management software. Following an accounting scandal and bankruptcy in 2003, Peregri ...
, and
WorldCom MCI, Inc. (subsequently Worldcom and MCI WorldCom) was a telecommunications company. For a time, it was the second largest long-distance telephone company in the United States, after AT&T. Worldcom grew largely by acquiring other telecommunic ...
. These scandals cost investors billions of dollars when the share prices of affected companies collapsed, and shook public confidence in the US
securities markets A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of saver ...
. The act contains eleven titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the
Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(SEC) to implement rulings on requirements to comply with the law.
Harvey Pitt Harvey L. Pitt (born February 28, 1945) is an American lawyer who served as the 26th chairman of the U.S. Securities and Exchange Commission (SEC), from 2001 to 2003. History Pitt graduated from Stuyvesant High School in 1961. He graduated fr ...
, the 26th chairman of the SEC, led the SEC in the adoption of dozens of rules to implement the Sarbanes–Oxley Act. It created a new, quasi-public agency, the
Public Company Accounting Oversight Board The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further t ...
, or PCAOB, charged with overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies. The act also covers issues such as
auditor An auditor is a person or a firm appointed by a company to execute an audit.Practical Auditing, Kul Narsingh Shrestha, 2012, Nabin Prakashan, Nepal To act as an auditor, a person should be certified by the regulatory authority of accounting and a ...
independence,
corporate governance Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context (such as accounting, finance, law, or management) often adopt narrow definitions ...
,
internal control Internal control, as defined by accounting and auditing, is a process for assuring of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. A broad ...
assessment, and enhanced financial disclosure. The nonprofit arm of
Financial Executives International Financial Executives International (FEI) is a member-service–oriented organization based in Morristown, New Jersey, for senior-level financial executives in companies in varying sizes, both public and private, and in all industries. FEI operates ...
, Financial Executives Research Foundation, completed extensive research studies to help support the foundations of the act. The act was approved in the House by a vote o
423 in favor, 3 opposed, and 8 abstaining
and in the Senate with a vote o
99 in favor and 1 abstaining
President George W. Bush signed it into law, stating it included "the most far-reaching reforms of American business practices since the time of
Franklin D. Roosevelt Franklin Delano Roosevelt (; ; January 30, 1882April 12, 1945), often referred to by his initials FDR, was an American politician and attorney who served as the 32nd president of the United States from 1933 until his death in 1945. As the ...
. The era of low standards and false profits is over; no boardroom in America is above or beyond the law.''" In response to the perception that stricter financial governance laws are needed, SOX-type regulations were subsequently enacted in Canada (2002), Germany (2002), South Africa (2002), France (2003), Australia (2004), India (2005), Japan (2006), Italy (2006), Israel, and Turkey. (See § Similar laws in other countries below.) Debates continued as of 2007 over the perceived benefits and costs of SOX. Opponents of the bill have claimed it has reduced America's international competitive edge because it has introduced an overly complex regulatory environment into US financial markets. A study commissioned by then New York City Mayor Michael Bloomberg and New York Senator
Chuck Schumer Charles Ellis Schumer ( ; born November 23, 1950) is an American politician serving as Senate Majority Leader since January 20, 2021. A member of the Democratic Party, Schumer is in his fourth Senate term, having held his seat since 1999, an ...
cited this as one reason America's financial sector is losing market share to other financial centers worldwide. Proponents of the measure said that SOX has been a "godsend" for improving the confidence of fund managers and other investors with regard to the veracity of corporate financial statements. The 10th anniversary of SOX coincided with the passing of the Jumpstart Our Business Startups (JOBS) Act, designed to give emerging companies an economic boost, and cutting back on a number of regulatory requirements.


Major elements

# Public Company Accounting Oversight Board #:Title I consists of nine sections and establishes the
Public Company Accounting Oversight Board The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further t ...
, to provide independent oversight of public accounting firms providing audit services ("auditors"). It also creates a small central oversight board tasked with registering auditors, defining the specific processes and procedures for compliance audits, inspecting and policing conduct and quality control, and enforcing compliance with the specific mandates of SOX. # Auditor Independence #:Title II consists of nine sections and establishes standards for external auditor independence, to limit conflicts of interest. It also addresses new auditor approval requirements, audit partner rotation, and auditor reporting requirements. It restricts auditing companies from providing non-audit services (e.g., consulting) for the same clients. # Corporate Responsibility #:Title III consists of eight sections and mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports. It enumerates specific limits on the behaviors of corporate officers and describes specific forfeitures of benefits and civil penalties for non-compliance. For example, Section 302 requires that the company's "principal officers" (typically the
chief executive officer A chief executive officer (CEO), also known as a central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especial ...
and
chief financial officer The chief financial officer (CFO) is an officer of a company or organization that is assigned the primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financ ...
) certify and approve the integrity of their company financial reports quarterly. # Enhanced Financial Disclosures #:Title IV consists of nine sections. It describes enhanced reporting requirements for financial transactions, including
off-balance-sheet Off balance sheet (OBS), or incognito leverage, usually means an asset or debt or financing activity not on the company's balance sheet. Total return swaps are an example of an off-balance-sheet item. Some companies may have significant amounts o ...
transactions,
pro-forma The term ''pro forma'' (Latin for "as a matter of form" or "for the sake of form") is most often used to describe a practice or document that is provided as a courtesy or satisfies minimum requirements, conforms to a norm or doctrine, tends to ...
figures and stock transactions of corporate officers. It requires internal controls for assuring the accuracy of financial reports and disclosures, and mandates both audits and reports on those controls. It also requires timely reporting of material changes in financial condition and specific enhanced reviews by the SEC or its agents of corporate reports. # Analyst Conflicts of Interest #:Title V consists of only one section, which includes measures designed to help restore investor confidence in the reporting of securities analysts. It defines the codes of conduct for securities analysts and requires disclosure of knowable conflicts of interest. # Commission Resources and Authority #:Title VI consists of four sections and defines practices to restore investor confidence in securities analysts. It also defines the SEC's authority to censure or bar securities professionals from practice and defines conditions under which a person can be barred from practicing as a broker, advisor, or dealer. # Studies and Reports #:Title VII consists of five sections and requires the
Comptroller General A comptroller (pronounced either the same as ''controller'' or as ) is a management-level position responsible for supervising the quality of accounting and financial reporting of an organization. A financial comptroller is a senior-level execut ...
and the SEC to perform various studies and report their findings. Studies and reports include the effects of consolidation of public accounting firms, the role of credit rating agencies in the operation of securities markets, securities violations, and enforcement actions, and whether investment banks assisted
Enron Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional compani ...
,
Global Crossing Global Crossing was a telecommunications company that provided computer networking services and operated a tier 1 carrier. It maintained a large backbone network and offered peering, virtual private networks, leased lines, audio and video con ...
, and others to manipulate earnings and obfuscate true financial conditions. # Corporate and Criminal Fraud Accountability #:Title VIII consists of seven sections and is also referred to as the ''"Corporate and Criminal Fraud Accountability Act of 2002''". It describes specific criminal penalties for manipulation, destruction or alteration of financial records or other interference with investigations, while providing certain protections for
whistle-blowers A whistleblower (also written as whistle-blower or whistle blower) is a person, often an employee, who reveals information about activity within a private or public organization that is deemed illegal, immoral, illicit, unsafe or fraudulent. Whi ...
. # White Collar Crime Penalty Enhancement #:Title IX consists of six sections. This section is also called the ''"White Collar Crime Penalty Enhancement Act of 2002"''. This section increases the criminal penalties associated with
white-collar crime The term "white-collar crime" refers to financially motivated, nonviolent or non-directly violent crime committed by individuals, businesses and government professionals. It was first defined by the sociologist Edwin Sutherland in 1939 as "a ...
s and conspiracies. It recommends stronger sentencing guidelines and specifically adds failure to certify corporate financial reports as a criminal offense. # Corporate Tax Returns #:Title X consists of one section. Section 1001 states that the
chief executive officer A chief executive officer (CEO), also known as a central executive officer (CEO), chief administrator officer (CAO) or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization especial ...
should sign the company tax return. # Corporate Fraud Accountability #:Title XI consists of seven sections. Section 1101 recommends a name for this title as ''"Corporate Fraud Accountability Act of 2002"''. It identifies corporate fraud and records tampering as criminal offenses and joins those offenses to specific penalties. It also revises sentencing guidelines and strengthens their penalties. This enables the SEC to resort to temporarily freezing transactions or payments that have been deemed "large" or "unusual". It also created the crime of
obstructing an official proceeding Corruptly obstructing, influencing, or impeding an official proceeding is a felony under U.S. federal law. It was enacted as part of the Sarbanes–Oxley Act of 2002 as a reaction to the Enron scandal, and closed a legal loophole on who could be ...
. # Obstructing an official proceeding #:
Obstructing an official proceeding Corruptly obstructing, influencing, or impeding an official proceeding is a felony under U.S. federal law. It was enacted as part of the Sarbanes–Oxley Act of 2002 as a reaction to the Enron scandal, and closed a legal loophole on who could be ...
is a felony under U.S. federal law. It was enacted as part of the Sarbanes–Oxley Act of 2002 as a reaction to the Enron scandal, and closed a legal loophole on who could be charged with evidence tampering by defining the new crime very broadly. It later became known for its use as a charge against defendants associated with the 2021 U.S. Capitol attack for attempting to obstruct that year's Electoral College vote count.


History and context

A variety of complex factors created the conditions and culture in which a series of large corporate frauds occurred between 2000 and 2002. The spectacular, highly publicized frauds at
Enron Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional compani ...
,
WorldCom MCI, Inc. (subsequently Worldcom and MCI WorldCom) was a telecommunications company. For a time, it was the second largest long-distance telephone company in the United States, after AT&T. Worldcom grew largely by acquiring other telecommunic ...
, and Tyco exposed significant problems with conflicts of interest and incentive compensation practices. The analysis of their complex and contentious root causes contributed to the passage of SOX in 2002. In a 2004 interview, Senator Paul Sarbanes stated: *Auditor conflicts of interest: Prior to SOX, auditing firms, the primary financial "watchdogs" for investors, were self-regulated. They also performed significant non-audit or consulting work for the companies they audited. Many of these consulting agreements were far more lucrative than the auditing engagement. This presented at least the appearance of a conflict of interest. For example, challenging the company's accounting approach might damage a client relationship, conceivably placing a significant consulting arrangement at risk, damaging the auditing firm's bottom line. *Boardroom failures: Boards of Directors, specifically Audit Committees, are charged with establishing oversight mechanisms for financial reporting in U.S. corporations on the behalf of investors. These scandals identified Board members who either did not exercise their responsibilities or did not have the expertise to understand the complexities of the businesses. In many cases, Audit Committee members were not truly independent of management. *Securities analysts' conflicts of interest: The roles of securities analysts, who make buy and sell recommendations on company stocks and bonds, and investment bankers, who help provide companies loans or handle mergers and acquisitions, provide opportunities for conflicts. Similar to the auditor conflict, issuing a buy or sell recommendation on a stock while providing lucrative investment banking services creates at least the appearance of a conflict of interest. *Inadequate funding of the SEC: The SEC budget has steadily increased to nearly double the pre-SOX level. In the interview cited above, Sarbanes indicated that enforcement and rule-making are more effective post-SOX. *Banking practices: Lending to a firm sends signals to investors regarding the firm's risk. In the case of Enron, several major banks provided large loans to the company without understanding, or while ignoring, the risks of the company. Investors of these banks and their clients were hurt by such bad loans, resulting in large settlement payments by the banks. Others interpreted the willingness of banks to lend money to the company as an indication of its health and integrity, and were led to invest in Enron as a result. These investors were hurt as well. *
Internet bubble The dot-com bubble (dot-com boom, tech bubble, or the Internet bubble) was a stock market bubble in the late 1990s, a period of massive growth in the use and adoption of the Internet. Between 1995 and its peak in March 2000, the Nasdaq Compos ...
: Investors had been stung in 2000 by the sharp declines in technology stocks and to a lesser extent, by declines in the overall market. Certain
mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...
managers were alleged to have advocated the purchasing of particular technology stocks, while quietly selling them. The losses sustained also helped create a general anger among investors. *Executive compensation: Stock option and bonus practices, combined with volatility in stock prices for even small earnings "misses," resulted in pressures to manage earnings. Stock options were not treated as compensation expense by companies, encouraging this form of compensation. With a large stock-based bonus at risk, managers were pressured to meet their targets.


Timeline and passage

The House passed Rep. Oxley's bill (H.R. 3763) on April 24, 2002, by a vote of 334 to 90. The House then referred the "Corporate and Auditing Accountability, Responsibility, and Transparency Act" or "CAARTA" to the Senate Banking Committee with the support of President
George W. Bush George Walker Bush (born July 6, 1946) is an American politician who served as the 43rd president of the United States from 2001 to 2009. A member of the Republican Party, Bush family, and son of the 41st president George H. W. Bush, he ...
and the SEC. At the time, however, the Chairman of that Committee, Senator
Paul Sarbanes Paul Spyros Sarbanes (; February 3, 1933 – December 6, 2020) was an American politician and attorney. A member of the Democratic Party from Maryland, he served as a member of the United States House of Representatives from 1971 to 1977 ...
(D-MD), was preparing his own proposal, Senate Bill 2673. Senator Sarbanes's bill passed the Senate Banking Committee on June 18, 2002, by a vote of 17 to 4. On June 25, 2002,
WorldCom MCI, Inc. (subsequently Worldcom and MCI WorldCom) was a telecommunications company. For a time, it was the second largest long-distance telephone company in the United States, after AT&T. Worldcom grew largely by acquiring other telecommunic ...
revealed it had overstated its earnings by more than $3.8 billion during the past five quarters (15 months), primarily by improperly accounting for its operating costs. Senator Sarbanes introduced Senate Bill 2673 to the full Senate that same day, and it passed 97–0 less than three weeks later on July 15, 2002. The House and the Senate formed a
Conference Committee A committee or commission is a body of one or more persons subordinate to a deliberative assembly. A committee is not itself considered to be a form of assembly. Usually, the assembly sends matters into a committee as a way to explore them more ...
to reconcile the differences between Sen. Sarbanes's bill (S. 2673) and Rep. Oxley's bill (H.R. 3763). The conference committee relied heavily on S. 2673 and "most changes made by the conference committee strengthened the prescriptions of S. 2673 or added new prescriptions." The Committee approved the final conference bill on July 24, 2002, and gave it the name "the Sarbanes–Oxley Act of 2002". The next day, both houses of
Congress A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...
voted on it without change, producing an overwhelming margin of victory: 423 to 3 in the House; and 99 to 0 in the Senate. On July 30, 2002, President George W. Bush signed it into law, stating it included "the most far-reaching reforms of American business practices since the time of
Franklin D. Roosevelt Franklin Delano Roosevelt (; ; January 30, 1882April 12, 1945), often referred to by his initials FDR, was an American politician and attorney who served as the 32nd president of the United States from 1933 until his death in 1945. As the ...
".


Analyzing the cost-benefits of Sarbanes–Oxley

A significant body of academic research and opinion exists regarding the costs and benefits of SOX compliance, with significant differences in conclusions. This is due in part to the difficulty of isolating the impact of SOX from other variables affecting the stock market and corporate earnings. Section 404 of the act, which requires management and the external auditor to report on the adequacy of a company's internal control on financial reporting, is often singled out for analysis. According to a 2019 study in ''the Journal of Law and Economics'', "We find a large decline in the average voting premium of US dual-class firms targeted by major SOX provisions that enhance boards’ independence, improve internal controls, and increase litigation risks. The targeted firms also improve the efficiency of investment, cash management, and chief executive officers’ compensation relative to firms not targeted by SOX. Overall, the evidence suggests that SOX is effective in curbing the private benefits of control."


Compliance costs

* FEI Survey (Annual):
Financial Executives International Financial Executives International (FEI) is a member-service–oriented organization based in Morristown, New Jersey, for senior-level financial executives in companies in varying sizes, both public and private, and in all industries. FEI operates ...
(FEI) provides an annual survey on SOX Section 404 costs. These costs have continued to decline relative to revenues since 2004. The 2007 study indicated that, for 168 companies with average revenues of $4.7 billion, the average compliance costs were $1.7 million (0.036% of revenue). The 2006 study indicated that, for 200 companies with average revenues of $6.8 billion, the average compliance costs were $2.9 million (0.043% of revenue), down 23% from 2005. Cost for decentralized companies (i.e., those with multiple segments or divisions) were considerably more than centralized companies. Survey scores related to the positive effect of SOX on investor confidence, reliability of financial statements, and fraud prevention continue to rise. However, when asked in 2006 whether the benefits of compliance with Section 404 have exceeded costs in 2006, only 22 percent agreed. *
Foley & Lardner Foley & Lardner LLP (often referred to simply as "Foley") is an international law firm founded in 1842. In terms of revenue, it ranked 48th on The American Lawyer's 2022 AmLaw 100 rankings of U.S. law firms, with over $1 billion in gross revenue i ...
Survey (2007): This annual study focused on changes in the total costs of being a U.S. public company, which were significantly affected by SOX. Such costs include external auditor fees, directors and officers (D&O) insurance, board compensation, lost productivity, and legal costs. Each of these cost categories increased significantly between FY2001 and FY2006. Nearly 70% of survey respondents indicated public companies with revenues under $251 million should be exempt from SOX Section 404. * Butler/Ribstein (2006): Their book proposed a comprehensive overhaul or repeal of SOX and a variety of other reforms. For example, they indicate that investors could diversify their stock investments, efficiently managing the risk of a few catastrophic corporate failures, whether due to fraud or competition. However, if each company is required to spend a significant amount of money and resources on SOX compliance, this cost is borne across all publicly traded companies and therefore cannot be diversified away by the investor. * A 2011 SEC study found that Section 404(b) compliance costs have continued to decline, especially after 2007 accounting guidance. * Lord & Benoit report (2008): A research report entitled "The Lord & Benoit Report: The Sarbanes-Oxley Investment" found the average cost of complying with Section 404(a) for non-accelerated filers (smaller public companies) was $53,724. Total costs of complying with Section 404(a) ranged from as low as $15,000 for a smaller software company to as high as $162,000. The initial prediction by the SEC was an average cost of $91,000 for public companies complying with Section 404(a). "Accounting problems have traditionally been a small company phenomenon, and the stock exchange is talking about exempting those most prone to abuse," said Barbara Roper, the Consumer Federation of America's director of investor protection. "It's a bad idea." She noted a January study by consulting firm Lord & Benoit that found complying with Sarbanes-Oxley would cost small companies an average of $78,000 the first year, or less than the $91,000 initially predicted by the SEC.


Benefits to firms and investors

* Arping/Sautner (2010): This research paper analyzes whether SOX enhanced corporate transparency. Looking at foreign firms that are cross-listed in the US, the paper indicates that, relative to a control sample of comparable firms that are not subject to SOX, cross-listed firms became significantly more transparent following SOX. Corporate transparency is measured based on the dispersion and accuracy of analyst earnings forecasts. * Iliev (2007): This research paper indicated that SOX 404 indeed led to conservative reported earnings but also reduced — rightly or wrongly — stock valuations of small firms. Lower earnings often cause the share price to decrease. * Rice and Weber (2011) shows that only a minority of SOX 404 reports provide any advance warning of the possibility of impending accounting problems. Reporting incentives of the firms, like the need for raising additional external capital, larger firm size and decreased external auditor objectivity, might prohibit firms reporting the weakness of internal control in advance. Therefore, SOX 404 alone might not achieve its intended results. * Skaife/Collins/Kinney/LaFond (2006): This research paper indicates that borrowing costs are much lower for companies that improved their internal control, by between 50 and 150 basis points (.5 to 1.5 percentage points). * Lord & Benoit Report (2006): Do the Benefits of 404 Exceed the Cost? A study of a population of nearly 2,500 companies indicated that those with no material weaknesses in their internal controls, or companies that corrected them in a timely manner, experienced much greater increases in share prices than companies that did not. The report indicated that the benefits to a compliant company in share price (10% above Russell 3000 index) were greater than their SOX Section 404 costs. * Institute of Internal Auditors (2005): The research paper indicates that corporations have improved their internal controls and that financial statements are perceived to be more reliable. * Donelson, Ege and McInnis (2017): This research paper indicates that firms with reported material weaknesses have significantly higher fraud.


Effects on exchange listing choice of non-US companies

Some have asserted that Sarbanes–Oxley legislation has helped displace business from New York to London, where the Financial Conduct Authority regulates the financial sector with a lighter touch. In the UK, the non-statutory Combined Code of Corporate Governance plays a somewhat similar role to SOX. See Howell E. Jackson & Mark J. Roe, "Public Enforcement of Securities Laws: Preliminary Evidence" (Working Paper January 16, 2007). London based
Alternative Investment Market AIM (formerly the Alternative Investment Market) is a sub-market of the London Stock Exchange that was launched on 19 June 1995 as a replacement to the previous Unlisted Securities Market (USM) that had been in operation since 1980. It allows ...
claims that its spectacular growth in listings almost entirely coincided with the Sarbanes–Oxley legislation. In December 2006, Michael Bloomberg, New York's mayor, and
Chuck Schumer Charles Ellis Schumer ( ; born November 23, 1950) is an American politician serving as Senate Majority Leader since January 20, 2021. A member of the Democratic Party, Schumer is in his fourth Senate term, having held his seat since 1999, an ...
, U.S. senator from New York, expressed their concern. The Sarbanes–Oxley Act's effect on non-U.S. companies cross-listed in the U.S. is different on firms from developed and well regulated countries than on firms from less developed countries according to Kate Litvak. Companies from badly regulated countries see benefits that are higher than the costs from better credit ratings by complying to regulations in a highly regulated country (USA), but companies from developed countries only incur the costs, since transparency is adequate in their home countries as well. On the other hand, the benefit of better credit rating also comes with listing on other stock exchanges such as the
London Stock Exchange London Stock Exchange (LSE) is a stock exchange in the City of London, England, United Kingdom. , the total market value of all companies trading on LSE was £3.9 trillion. Its current premises are situated in Paternoster Square close to St P ...
. Piotroski and Srinivasan (2008) examine a comprehensive sample of international companies that list onto U.S. and U.K. stock exchanges before and after the enactment of the Act in 2002. Using a sample of all listing events onto U.S. and U.K. exchanges from 1995 to 2006, they find that the listing preferences of large foreign firms choosing between U.S. exchanges and the LSE's Main Market did not change following SOX. In contrast, they find that the likelihood of a U.S. listing among small foreign firms choosing between the Nasdaq and LSE's Alternative Investment Market decreased following SOX. The negative effect among small firms is consistent with these companies being less able to absorb the incremental costs associated with SOX compliance. The screening of smaller firms with weaker governance attributes from U.S. exchanges is consistent with the heightened governance costs imposed by the Act increasing the bonding-related benefits of a U.S. listing.


Implementation of key provisions


Sarbanes–Oxley Section 302: Disclosure controls

Under Sarbanes–Oxley, two separate sections came into effect—one civil and the other criminal. (Section 302) (civil provision); (Section 906) (criminal provision). Section 302 of the Act mandates a set of internal procedures designed to ensure accurate financial disclosure. The signing officers must certify that they are "responsible for establishing and maintaining
internal control Internal control, as defined by accounting and auditing, is a process for assuring of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. A broad ...
s" and "have designed such internal controls to ensure that material information relating to the company and its consolidated subsidiaries is made known to such officers by others within those entities, particularly during the period in which the periodic reports are being prepared". . The officers must "have evaluated the effectiveness of the company's internal controls as of a date within 90 days prior to the report" and "have presented in the report their conclusions about the effectiveness of their internal controls based on their evaluation as of that date". ''Id.''. The SEC interpreted the intention of Sec. 302 in Final Rule 33–8124. In it, the SEC defines the new term "
disclosure Disclosure may refer to: Arts and media * ''Disclosure'' (The Gathering album), 2012 *Disclosure (band), a UK-based garage/electronic duo * ''Disclosure'' (novel), 1994 novel written by Michael Crichton ** ''Disclosure'' (1994 film), an American ...
controls and procedures," which are distinct from "
internal control Internal control, as defined by accounting and auditing, is a process for assuring of an organization's objectives in operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations and policies. A broad ...
s over
financial reporting Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. Relevant financial information is presented in a structured manner and in a form which is easy to un ...
". Under both Section 302 and Section 404, Congress directed the SEC to promulgate regulations enforcing these provisions. External auditors are required to issue an opinion on whether effective internal control over financial reporting was maintained in all material respects by management. This is in addition to the financial statement opinion regarding the accuracy of the financial statements. The requirement to issue a third opinion regarding management's assessment was removed in 2007. A ''Lord & Benoit'' report, titled ''Bridging the Sarbanes-Oxley Disclosure Control Gap'' was filed with the SEC Subcommittee on internal controls which reported that those companies with ineffective internal controls, the expected rate of full and accurate disclosure under Section 302 will range between 8 and 15 percent. A full 9 out of every 10 companies with ineffective Section 404 controls self reported effective Section 302 controls in the same period end that an adverse Section 404 was reported, 90% in accurate without a Section 404 audit.


Sarbanes–Oxley Section 303: Improper influence on the conduct of audits

a. Rules To Prohibit. It shall be unlawful, in contravention of such rules or regulations as the Commission shall prescribe as necessary and appropriate in the public interest or for the protection of investors, for any officer or director of an issuer, or any other person acting under the direction thereof, to take any action to fraudulently influence, coerce, manipulate, or mislead any independent public or certified accountant engaged in the performance of an audit of the financial statements of that issuer for the purpose of rendering such financial statements materially misleading. b. Enforcement. In any civil proceeding, the Commission shall have exclusive authority to enforce this section and any rule or regulation issued under this section. c. No Preemption of Other Law. The provisions of subsection (a) shall be in addition to, and shall not supersede or preempt, any other provision of law or any rule or regulation issued thereunder. d. Deadline for Rulemaking. The Commission shall—1. propose the rules or regulations required by this section, not later than 90 days after the date of enactment of this Act; and 2. issue final rules or regulations required by this section, not later than 270 days after that date of enactment.


Sarbanes–Oxley Section 401: Disclosures in periodic reports (Off-balance sheet items)

The bankruptcy of
Enron Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional compani ...
drew attention to
off-balance sheet Off balance sheet (OBS), or incognito leverage, usually means an asset or debt or financing activity not on the company's balance sheet. Total return swaps are an example of an off-balance-sheet item. Some companies may have significant amounts o ...
instruments that were used fraudulently. During 2010, the court examiner's review of the
Lehman Brothers bankruptcy The bankruptcy of Lehman Brothers on September 15, 2008, was the climax of the subprime mortgage crisis. After the financial services firm was notified of a pending credit downgrade due to its heavy position in subprime mortgages, the Federal ...
also brought these instruments back into focus, as Lehman had used an instrument called "Repo 105" to allegedly move assets and debt off-balance sheet to make its financial position look more favorable to investors. Sarbanes-Oxley required the disclosure of all material off-balance sheet items. It also required an SEC study and report to better understand the extent of usage of such instruments and whether accounting principles adequately addressed these instruments; the SEC report was issued June 15, 2005. Interim guidance was issued in May 2006, which was later finalized. Critics argued the SEC did not take adequate steps to regulate and monitor this activity.


Sarbanes–Oxley Section 404: Assessment of internal control

The most contentious aspect of SOX is Section 404, which requires management and the external auditor to report on the adequacy of the company's internal control on financial reporting (ICFR). This is the most costly aspect of the legislation for companies to implement, as documenting and testing important financial manual and automated controls requires enormous effort. Under Section 404 of the Act, management is required to produce an "internal control report" as part of each annual Exchange Act report. ''See'' . The report must affirm "the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting". . The report must also "contain an assessment, as of the end of the most recent fiscal year of the Company, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting". To do this, managers are generally adopting an internal control framework such as that described in COSO. To help alleviate the high costs of compliance, guidance and practice have continued to evolve. The
Public Company Accounting Oversight Board The Public Company Accounting Oversight Board (PCAOB) is a nonprofit corporation created by the Sarbanes–Oxley Act of 2002 to oversee the audits of public companies and other issuers in order to protect the interests of investors and further t ...
(PCAOB) approved Auditing Standard No. 5 for public accounting firms on July 25, 2007. This standard superseded Auditing Standard No. 2, the initial guidance provided in 2004. The SEC also released its interpretive guidance on June 27, 2007. It is generally consistent with the PCAOB's guidance, but intended to provide guidance for management. Both management and the external auditor are responsible for performing their assessment in the context of a top-down risk assessment, which requires management to base both the scope of its assessment and evidence gathered on risk. This gives management wider discretion in its assessment approach. These two standards together require management to: * Assess both the design and operating effectiveness of selected internal controls related to significant accounts and relevant assertions, in the context of material misstatement risks; * Understand the flow of transactions, including IT aspects, in sufficient detail to identify points at which a misstatement could arise; * Evaluate company-level (entity-level) controls, which correspond to the components of the COSO framework; * Perform a fraud risk assessment; * Evaluate controls designed to prevent or detect fraud, including management override of controls; * Evaluate controls over the period-end financial reporting process; * Scale the assessment based on the size and complexity of the company; * Rely on management's work based on factors such as competency, objectivity, and risk; * Conclude on the adequacy of internal control over financial reporting. SOX 404 compliance costs represent a tax on inefficiency, encouraging companies to centralize and automate their financial reporting systems. This is apparent in the comparative costs of companies with decentralized operations and systems, versus those with centralized, more efficient systems. For example, the 2007 Financial Executives International (FEI) survey indicated average compliance costs for decentralized companies were $1.9 million, while centralized company costs were $1.3 million. Costs of evaluating manual control procedures are dramatically reduced through automation.


Sarbanes–Oxley 404 and smaller public companies

The cost of complying with SOX 404 impacts smaller companies disproportionately, as there is a significant fixed cost involved in completing the assessment. For example, during 2004 U.S. companies with revenues exceeding $5 billion spent 0.06% of revenue on SOX compliance, while companies with less than $100 million in revenue spent 2.55%. This disparity is a focal point of 2007 SEC and U.S. Senate action. The PCAOB intends to issue further guidance to help companies scale their assessment based on company size and complexity during 2007. The SEC issued their guidance to management in June, 2007. After the SEC and PCAOB issued their guidance, the SEC required smaller public companies (non-accelerated filers) with fiscal years ending after December 15, 2007 to document a Management Assessment of their Internal Controls over Financial Reporting (ICFR). Outside auditors of non-accelerated filers however opine or test internal controls under PCAOB (Public Company Accounting Oversight Board) Auditing Standards for years ending after December 15, 2008. Another extension was granted by the SEC for the outside auditor assessment until years ending after December 15, 2009. The reason for the timing disparity was to address the House Committee on Small Business concern that the cost of complying with Section 404 of the Sarbanes–Oxley Act of 2002 was still unknown and could therefore be disproportionately high for smaller publicly held companies. On October 2, 2009, the SEC granted another extension for the outside auditor assessment until fiscal years ending after June 15, 2010. The SEC stated in their release that the extension was granted so that the SEC's Office of Economic Analysis could complete a study of whether additional guidance provided to company managers and auditors in 2007 was effective in reducing the costs of compliance. They also stated that there will be no further extensions in the future. On September 15, 2010 the SEC issued final rule 33–9142 the permanently exempts registrants that are neither accelerated nor large accelerated filers as defined by Rule 12b-2 of the Securities and Exchange Act of 1934 from Section 404(b) internal control audit requirement.


Sarbanes–Oxley Section 802: Criminal penalties for influencing US Agency investigation/proper administration

Section 802(a) of the SOX, states:


Sarbanes–Oxley Section 806: Civil action to protect against retaliation in fraud cases

Section 806 of the Sarbanes–Oxley Act, also known as the whistleblower-protection provision, prohibits any "officer, employee, contractor, subcontractor, or agent" of a publicly traded company from retaliating against "an employee" for disclosing reasonably perceived potential or actual violations of the six enumerated categories of protected conduct in Section 806 (securities fraud, shareholder fraud, bank fraud, a violation of any SEC rule or regulation, mail fraud, or wire fraud). Section 806 prohibits a broad range of retaliatory adverse employment actions, including discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower. Recently a federal court of appeals held that merely "outing" or disclosing the identity of a whistleblower is actionable retaliation. Remedies under Section 806 include:


Filing Procedure

A claim under the anti-retaliation provision of the Sarbanes–Oxley Act must be filed initially at the Occupational Safety and Health Administration at the U.S. Department of Labor. OSHA will perform an investigation and if they conclude that the employer violated SOX, OSHA can order preliminary reinstatement. OSHA is required to dismiss the complaint if the complaint fails to make a ''prima facie'' showing that the protected activity was a "contributing factor" in the adverse employment action.


Significant §806 Whistleblower Decisions

In the sixteen-year period from the passage of the Sarbanes Oxley Act in 2002 through December 31, 2018, a total of 1039 cases have been filed with the Department of Labor of which 62 were still pending before the Department of Labor as of January 1, 2019.


Sarbanes–Oxley Section 906: Criminal Penalties for CEO/CFO financial statement certification

§ 1350. Section 906 states: Failure of corporate officers to certify financial reports (a) Certification of Periodic Financial Reports.— Each periodic report containing financial statements filed by an issuer with the Securities Exchange Commission pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m (a) or 78o (d)) shall be accompanied by a written statement by the chief executive officer and chief financial officer (or equivalent thereof) of the issuer. (b) Content.— The statement required under subsection (a) shall certify that the periodic report containing the financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)) and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer. (c) Criminal Penalties.— Whoever— (1) certifies any statement as set forth in subsections (a) and (b) of this section knowing that the periodic report accompanying the statement does not comport with all the requirements set forth in this section shall be fined not more than $1,000,000 or imprisoned not more than 10 years, or both; or (2) willfully certifies any statement as set forth in subsections (a) and (b) of this section knowing that the periodic report accompanying the statement does not comport with all the requirements set forth in this section shall be fined not more than $5,000,000, or imprisoned not more than 20 years, or both.


Sarbanes–Oxley Section 1107: Criminal penalties for retaliation against whistleblowers

Section 1107 of the SOX states:


Clawbacks of executive compensation for misconduct

One of the highlights of the law was a provision that allowed the SEC to force a company's CEO or CFO to disgorge any executive compensation (such as bonus pay or proceeds from stock sales) earned within a year of misconduct that results in an earnings restatement. However, according to
Gretchen Morgenson Gretchen C. Morgenson (born January 2, 1956) is an American, Pulitzer Prize-winning journalist notable as longtime writer of the ''Market Watch'' column for the Sunday "Money & Business" section of ''The New York Times''. In November, 2017, sh ...
of ''
The New York Times ''The New York Times'' (''the Times'', ''NYT'', or the Gray Lady) is a daily newspaper based in New York City with a worldwide readership reported in 2020 to comprise a declining 840,000 paid print subscribers, and a growing 6 million paid ...
'', such
clawback The term clawback or claw back refers to any money or benefits that have been given out, but are required to be returned (clawed back) due to special circumstances or events, such as the monies having been received as the result of a financial crim ...
s have actually been rare, due in part to the requirement that the misconduct must be either deliberate or reckless. The SEC did not attempt to claw back any executive compensation until 2007, and as of December 2013 had only brought 31 cases, 13 of which were begun after 2010. However, according to Dan Whalen of the accounting research firm Audit Analytics, the threat of clawbacks, and the time-consuming litigation associated with them, has forced companies to tighten their financial reporting standards.


Criticism

Congressman Ron Paul and others such as former Arkansas governor Mike Huckabee have contended that SOX was an unnecessary and costly government intrusion into corporate management that places U.S. corporations at a competitive disadvantage with foreign firms, driving businesses out of the United States. In an April 14, 2005 speech before the U.S. House of Representatives, Paul stated A research study published by Joseph Piotroski of Stanford University and Suraj Srinivasan of Harvard Business School titled "Regulation and Bonding: Sarbanes Oxley Act and the Flow of International Listings" in the
Journal of Accounting Research The ''Journal of Accounting Research'' is a leading peer review, peer-reviewed academic journal associated with the University of Chicago. It was established in 1963 and is published by Wiley-Blackwell on behalf of the Accounting Research Center (F ...
in 2008 found that following the act's passage, smaller international companies were more likely to list in stock exchanges in the U.K. rather than U.S. stock exchanges. During the
financial crisis of 2007–2010 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
, critics blamed Sarbanes–Oxley for the low number of Initial Public Offerings (IPOs) on American stock exchanges during 2008. In November 2008, Newt Gingrich and co-author David W. Kralik called on Congress to repeal Sarbanes–Oxley. A 2012 Wall St. Journal editorial stated, "One reason the U.S. economy isn't creating enough jobs is that it's not creating enough employers ... For the third year in a row the world's leading exchange for new stock offerings was located not in New York, but in Hong Kong ... Given that the U.S. is still home to the world's largest economy, there's no reason it shouldn't have the most vibrant equity markets—unless regulation is holding back the creation of new public companies. On that score it's getting harder for backers of the Sarbanes-Oxley accounting law to explain away each disappointing year since its 2002 enactment as some kind of temporary or unrelated setback."


Praise

Former Federal Reserve Chairman
Alan Greenspan Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. ...
praised the Sarbanes–Oxley Act in 2005: "I am surprised that the Sarbanes–Oxley Act, so rapidly developed and enacted, has functioned as well as it has ... the act importantly reinforced the principle that shareholders own our corporations and that corporate managers should be working on behalf of shareholders to allocate business resources to their optimum use." SOX has been praised by a cross-section of financial industry experts, citing improved investor confidence and more accurate, reliable financial statements. The CEO and CFO are now required to unequivocally take ownership for their financial statements under Section 302, which was not the case prior to SOX. Further, auditor conflicts of interest have been addressed, by prohibiting auditors from also having lucrative consulting agreements with the firms they audit under Section 201. SEC Chairman Christopher Cox stated in 2007: "Sarbanes–Oxley helped restore trust in U.S. markets by increasing accountability, speeding up reporting, and making audits more independent." The 2007 FEI study and research by the Institute of Internal Auditors (IIA) also indicate SOX has improved investor confidence in financial reporting, a primary objective of the legislation. The IIA study also indicated improvements in board, audit committee, and senior management engagement in financial reporting and improvements in financial controls. Financial restatements increased significantly in the wake of the SOX legislation, as companies "cleaned up" their books. Glass, Lewis & Co. LLC is a San Francisco-based firm that tracks the volume of do-overs by public companies. Its March 2006 report, "Getting It Wrong the First Time," shows 1,295 restatements of financial earnings in 2005 for companies listed on U.S. securities markets, almost twice the number for 2004. "That's about one restatement for every 12 public companies—up from one for every 23 in 2004," says the report. A fraud documented by the Securities and Exchange Commission (SEC) in November 2009, validated whistleblower allegations first logged in 2005. may be directly credited to Sarbanes-Oxley. The fraud, which spanned nearly 20 years and involved over $24 million, was committed by
Value Line Value Line, Inc. is an independent investment research and financial publishing firm based in New York City, New York, United States, founded in 1931 by Arnold Bernhard. Value Line is best known for publishing ''The Value Line Investment Survey ...
() against its mutual fund shareholders. The fraud was first reported to the SEC in 2004 by the then Value Line Fund () portfolio manager and Chief Quantitative Strategist, Mr. John (Jack) R. Dempsey of Easton, Connecticut, who was required to sign a Code of Business Ethics as part of SOX. Restitution totaling $34 million was placed in a fair fund and returned to the affected Value Line mutual fund investors. The Commission ordered Value Line to pay a total of $43,705,765 in disgorgement, prejudgment interest and civil penalty, and ordered Buttner, CEO and Henigson, COO to pay civil penalties of $1,000,000 and $250,000, respectively. The Commission further imposed officer and director bars and broker-dealer, investment adviser, and investment company associational bars ("Associational Bars") against Buttner and Henigson. No criminal charges were filed. The Sarbanes–Oxley Act has been praised for nurturing an ethical culture as it forces top management to be transparent and employees to be responsible for their acts whilst protecting whistleblowers. Indeed, courts have held that top management may be in violation of its obligation to assess and disclose material weaknesses in its internal control over financial reporting when it ignores an employee's concerns that could impact the company's SEC filings.


Legal challenges

A lawsuit ('' Free Enterprise Fund v. Public Company Accounting Oversight Board'') was filed in 2006 challenging the constitutionality of the PCAOB. The complaint argues that because the PCAOB has regulatory powers over the accounting industry, its officers should be appointed by the President, rather than the SEC. Further, because the law lacks a "severability clause," if part of the law is judged unconstitutional, so is the remainder. If the plaintiff prevails, the U.S. Congress may have to devise a different method of officer appointment. Further, the other parts of the law may be open to revision. The lawsuit was dismissed from a District Court; the decision was upheld by the Court of Appeals on August 22, 2008. Judge Kavanaugh, in his dissent, argued strongly against the constitutionality of the law. On May 18, 2009, the United States Supreme Court agreed to hear this case. On December 7, 2009, it heard the oral arguments. On June 28, 2010, the United States Supreme Court unanimously turned away a broad challenge to the law, but ruled 5–4 that a section related to appointments violates the Constitution's separation of powers mandate. The act remains "fully operative as a law" pending a process correction. In its March 4, 2014 ''Lawson v. FMR LLC'' decision the United States Supreme Court rejected a narrow reading of the SOX whistleblower protection and instead held that the anti-retaliation protection that the Sarbanes–Oxley Act of 2002 provided to whistleblowers applies also to employees of a public company's private contractors and subcontractors, including the attorneys and accountants who prepare the SEC filings of public companies. Subsequent interpretations of Lawson, however, suggest that the disclosures of a contractor's employee are protected only if those disclosures pertain to fraud perpetrated by a publicly traded company, as opposed to wrongdoing by a private contractor. In its February 25, 2015 ''
Yates v. United States ''Yates v. United States'', 354 U.S. 298 (1957), was a case decided by the Supreme Court of the United States that held that the First Amendment protected radical and reactionary speech, unless it posed a " clear and present danger." Background ...
'' decision the Supreme Court of the United States sided with Yates by reversing the previous judgement, with a plurality of the justices reading the Act to cover "only objects one can use to record or preserve information, not all objects in the physical world". Justice Samuel Alito concurred in the judgment and noted that the statute's nouns and verbs only applies to filekeeping and not fish.


Sarbanes-Oxley reporting tools

Close scrutiny of corporate governance and greater responsibility placed on directors to vouch for the reports submitted to the SEC and other federal agencies, have resulted in the growth of software solutions aimed at reducing the complexity, time and expense involved in creating the reports. This trend accelerated in 2008 with the passage of the
Dodd–Frank Wall Street Reform and Consumer Protection Act The Dodd–Frank Wall Street Reform and Consumer Protection Act, commonly referred to as Dodd–Frank, is a United States federal law that was enacted on July 21, 2010. The law overhauled financial regulation in the aftermath of the Great Recess ...
. Software as a service (
SaaS Software as a service (SaaS ) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. SaaS is also known as "on-demand software" and Web-based/Web-hosted software. SaaS is con ...
) products allow corporate directors and internal auditors to assemble and analyze financial and other relevant data—including unstructured data—and create the needed reports quickly and without the need of an outside vendor.


2021 Capitol insurrection charges

Some twenty years after its implementation, a provision of the Sarbanes-Oxley Act
18 U.S. Code § 1512
was introduced in the prosecution of many of the rioters of the Jan. 6, 2021 Capitol insurrection. Some 40% were charged with corruptly impeding an official proceeding.


Legislative information

* House: , H. Rept. 107–414, H. Rept. 107–610 * Senate: , S. Rept. 107–205 *Law: ,


Similar laws in other countries

* C-SOX – Canadian equivalent of Sarbanes–Oxley Act * Minimum requirements for risk management for trading companies in Germany * German Corporate Governance Code – 2002 German corporate governance code (German Wikipedia) *
King Report on Corporate Governance The King Report on Corporate Governance is a booklet of guidelines for the governance structures and operation of companies in South Africa. It is issued by the King Committee on Corporate Governance. Three reports were issued in 1994 (King I), 20 ...
- 2002 South African corporate governance code, King II Report, non-legislative * Code Tabaksblat – 2003 Dutch governance code, based on 'comply or explain' (Dutch Wikipedia) *
Financial Security Law of France The Financial Security Law of France (known in France as LSF or Loi de sécurité financière), signed by the Minister of Finance, Francis Mer, was adopted by the French Parliament on July 17, 2003 in order to strengthen the legal provisions relat ...
("Loi sur la Sécurité Financière") – 2003 French equivalent of Sarbanes–Oxley Act *
Corporate Law Economic Reform Program Act 2004 ''Corporate Law Economic Reform Program (Audit Reform & Corporate Disclosure) Act 2004'', commonly called CLERP 9, modified the Corporations Act 2001 (Commonwealth) which governs corporate law in Australia. It was enacted in July 2004. The chang ...
- 2004 Australian corporate reporting and disclosure law *
Clause 49 ''Clause 49'' of the Listing Agreement to the Indian stock exchange that came into effect from 31 December 2005. It has been formulated for the improvement of corporate governance in all listed companies. Background In corporate hierarchy two t ...
– 2005 Indian corporate governance clause * Italian Law 262/2005 ("Disposizioni per la tutela del risparmio e la disciplina dei mercati finanziari") * J-SOX – 2006 Japanese equivalent of Sarbanes–Oxley Act * TC-SOX Turkish equivalent of Sarbanes–Oxley Act


See also

* Agency cost *
Basel Accord The Basel Accords refer to the banking supervision accords (recommendations on banking regulations) issued by the Basel Committee on Banking Supervision (BCBS). Basel I was developed through deliberations among central bankers from major countrie ...
*
Big Four (audit firms) The Big Four are the four largest professional services networks in the world, the global accounting networks Deloitte, Ernst & Young (EY), KPMG, and PricewaterhouseCoopers (PwC). The four are often grouped because they are comparable in size re ...
*
Contract Management Contract management or contract administration is the management of contracts made with customers, vendors, partners, or employees. Contract management includes negotiating the terms and conditions in contracts and ensuring compliance with the terms ...
*
Data Loss Prevention Data loss prevention (DLP) software detects potential data breaches/data ex-filtration transmissions and prevents them by monitoring, detecting and blocking sensitive data while ''in use'' (endpoint actions), ''in motion'' (network traffic), and ' ...
*
Data governance Data governance is a term used on both a macro and a micro level. The former is a political concept and forms part of international relations and Internet governance; the latter is a data management concept and forms part of corporate data govern ...
*
Fair Fund A Fair Fund is a fund established by the U.S. Securities and Exchange Commission (SEC) to distribute disgorgements (returns of wrongful profits) and penalties (fines) to defrauded investors. Fair Funds were established by the Sarbanes–Oxley Act o ...
s, established by Sarbanes–Oxley * Glass–Steagall Act *
Holding Foreign Companies Accountable Act The Holding Foreign Companies Accountable Act is a 2020 law that requires companies publicly listed on stock exchanges in the United States to disclose to the United States Securities and Exchange Commission information on foreign jurisdictions ...
*
Information technology audit An information technology audit, or information systems audit, is an examination of the management controls within an Information technology (IT) infrastructure and business applications. The evaluation of evidence obtained determines if the inform ...
*
Information technology controls In business and accounting, information technology controls (or IT controls) are specific activities performed by persons or systems designed to ensure that business objectives are met. They are a subset of an enterprise's internal control. IT con ...
*
ISO/IEC 27000-series The ISO/IEC 27000-series (also known as the 'ISMS Family of Standards' or 'ISO27K' for short) comprises information security standards published jointly by the International Organization for Standardization (ISO) and the International Electrotechni ...
*
Reg FD Regulation FD (Fair Disclosure),
Retrieved January 25, 2011.
ordinarily referred to as Regula ...
*
Richard M. Scrushy Richard Marin Scrushy Matulich 2008: 337 (born August 1952) is an American businessman and convicted felon. He is the founder of HealthSouth Corporation, a global healthcare company based in Birmingham, Alabama. Matulich 2008: 338 In 2004, follow ...
, CEO of
HealthSouth Encompass Health Corporation, based in Birmingham, Alabama, is one of the United States' largest providers of post-acute healthcare services, offering both facility-based and home-based post-acute services in 36 states and Puerto Rico through its ...
, the first executive charged and to be acquitted under Sarbanes–Oxley


References


External links


Sarbanes-Oxley Act of 2002PDFdetails
as amended in the
GPO GPO may refer to: Government and politics * General Post Office, Dublin * General Post Office, in Britain * Social Security Government Pension Offset, a provision reducing benefits * Government Pharmaceutical Organization, a Thai state enterpris ...
br>Statute Compilations collectionPresident George W. Bush — Signing Statement
*[http://www.gpo.gov/fdsys/pkg/CHRG-112hhrg76123/pdf/CHRG-112hhrg76123.pdf The 10th Anniversary of the Sarbanes-Oxley Act: Hearing before the Subcommittee on Capital Markets and Government Sponsored Enterprises of the Committee on Financial Services, U.S. House of Representatives, One Hundred Twelfth Congress, Second Session, July 26, 2012, 139 pages] {{DEFAULTSORT:Sarbanes-Oxley Act Sarbanes–Oxley Act, Acts of the 107th United States Congress United States corporate law United States federal criminal legislation United States federal financial legislation United States federal securities legislation