SOX (Sarbanes-Oxley Act)
Definition
The Sarbanes-Oxley Act (SOX) is a US federal law enacted in 2002 to protect investors by improving the accuracy and reliability of corporate financial disclosures.
Explanation
SOX was passed in response to major corporate accounting scandals (Enron, WorldCom, Tyco). Key provisions include Section 302 (CEO/CFO certification of financial statements), Section 404 (management assessment of internal controls), and Section 802 (criminal penalties for document destruction).
SOX requirements apply to all public companies in the US and their auditors. Compliance involves significant documentation, testing, and external audit of internal controls over financial reporting.
Example
A public company's CEO and CFO must personally certify the accuracy of financial statements and face criminal penalties if they knowingly certify false reports, as required by SOX Section 302.