What is the Sarbanes-Oxley Act?
The Sarbanes-Oxley Act, or SOX, is a set of laws that were enacted in 2002 as a response to accounting scandals in large, publicly traded corporations. The main purpose of the Act is to protect investors from fraudulent financial activity by requiring greater transparency and accountability by corporate management. The Sarbanes-Oxley Act requires corporations to maintain accurate and transparent financial records, to implement internal financial controls, to disclose potential conflicts of interest, and to establish an independent board of directors. It also sets strict penalties for financial fraud and imposes restrictions on executive compensation. Under the Sarbanes-Oxley Act, CEOs and CFOs of publicly-traded companies are required to certify the accuracy of their financial reports and certify that their internal financial controls are operating effectively. They are also required to testify under oath that their reports are free from material misstatements or omissions. In Washington, the Sarbanes-Oxley Act is enforced by the Securities and Exchange Commission (SEC). The SEC is responsible for ensuring compliance with the Sarbanes-Oxley Act and can levy fines and other penalties on companies that fail to comply. The Sarbanes-Oxley Act is a critical piece of legislative reform that improves the protection of investors and helps promote corporate responsibility. Through its measures, it helps to ensure greater transparency in corporate financial reporting and ensure that publicly-traded companies are accountable for their financial statements and activities.
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