The Sarbanes-Oxley Act is an act passed by the U.S. House of Representatives in 2002. The act covers issues such as auditor independence, corporate responsibility and establishes new or enhanced standards for all U.S. public company boards, management and public accounting firms. It is considered as one of the most significant changes in United States securities laws. The act was designed to review all legislative audit requirements. The act gives additional powers and responsibilities to the U. S. Securities and Exchange Commission. The Sarbanes-Oxley Act of 2002 is also known as the Public Company Accounting Reform and Investor Protection Act of 2002. It is commonly known as SOX or SarbOx. The Sarbanes-Oxley Act was passed in response to a number of corporate and accounting scandals involving prominent companies in the United States. The scandals resulted in a loss of public trust in accounting practices. The Sarbanes-Oxley law contains 11 sections with issues ranging from corporate board responsibilities to criminal penalties. In view of the financial scandals, Republican Michael Oxley introduced his proposal for reforms that was passed by the U.S. House of Representatives on April 25, 2002. The House then referred the bill to the Senate Banking Committee. At the same time, Senator Paul Sarbanes was in the process of preparing his own proposal. Senator Sarbanes's bill passed the Senate Banking Committee on June 18, 2002, by a vote of seventeen to four. The House and the Senate formed a committee to reconcile the differences between Senator Sarbanes's bill and Representative Oxley's bill. The Committee approved the final conference bill on July 24, 2002 and named it the Sarbanes-Oxley Act of 2002. The act seeks to establish new standards for Corporate Boards and Audit Committees. It also sets new accountability standards and criminal penalties for Corporate Management. It addressed the need for new independent standards for external auditors. The act recommended the establishment of a Public Company Accounting Oversight Board (PCAOB) under the Security and Exchange Commission (SEC) to oversee public accounting firms and issue accounting standards. The passing of the Sarbanes-Oxley Act set new standards for corporate accountability and governance. |
