The History of SOXThe Sarbanes-Oxley Act or SOX is also known as the Public Company Accounting Reform and Investor Protection Act of 2002. SOX was established in April of 2002 by two gentlemen at different times. The first proposal was submitted by Representative Michael G. Oxley a Republican from Ohio followed by a second proposal by Senator Paul Sarbanes a Democrat from Maryland. After the second submission, the House of Representatives reconciled the two proposals and made it into one act. The Act was put together mainly due to the sudden financial scandals committed by corporate giants like Enron and WorldCom, etc. Since then the Sarbanes-Oxley Act has continued to be an active part of the legislation which weighs heavily on the corporate governance, financial disclosures and total accounting pattern in the companies. Once the Sarbanes-Oxley took full effect, there was a tremendous change in the order kept in companies with financial statements and accounting systems.
The Act continues to move on in continuing to keep better protection on finanicial endeavors. This has prompted many other new projects including the establishment of a new quasi-public agency, the Public Company Accounting Oversight Board, or PCAOB, which is 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 independence, corporate governance, internal control assessment, and enhanced financial disclosure. (Wikipedia.org)An Overview of SOXThe Sarbanes-Oxley Act (the Act) is one of the most significant business-related events to impact the commercial market place in recent years. The Act's key objectives are to:•Increase investor/shareholder confidence in public reporting.
•Increase management's accountability for financial reporting and information disclosed to the market.
•Develop a stronger, more independent audit system.
•Reduce accounting irregularities/aggressive financial reporting.
•Ensure that the internal controls surrounding financial reporting are effective via internal monitoring functions.
•Reduce fraud and increase accountability for expenses.
These objectives are all about members of management, various committees, the governing board, and the organization's external auditor, acting with integrity and recognizing their responsibility to be accountable to specific constituent groups as well as the general public.
The Act's Section 404 is probably the most important provision in the document. It requires that:•Management establishes and maintains an adequate internal control structure and procedures for financial reporting.