The Sarbanes-Oxley Act Explainer
The Sarbanes-Oxley Act, commonly called SOX, is a 2002 U.S. law enacted after major accounting failures. It strengthened oversight of public-company audits, management accountability for disclosures, audit-committee authority, auditor independence, and penalties for certain misconduct involving records and reporting.
The law created the Public Company Accounting Oversight Board to register and inspect audit firms and establish applicable standards. Senior executives must certify periodic reports, while audit committees take responsibility for appointing and overseeing the independent auditor and handling relevant complaints.
Section 404 requires management to assess internal control over financial reporting. Many issuers also obtain an auditor attestation, although scope and exemptions vary by filer status. Compliance therefore combines risk assessment, documentation, testing, deficiency evaluation, disclosure, and remediation.
SOX does not promise accurate markets or eliminate fraud. It creates governance, control, and accountability mechanisms whose effectiveness depends on implementation. Readers should distinguish statutory requirements from exchange rules, SEC regulations, PCAOB standards, and company practices built around them.
Executives, boards, audit committees, and auditors have defined responsibilities.
Certifications and oversight support the disclosure system.
The law created a regulator for registered audit firms and standards.
Inspection and enforcement complement SEC authority.
Management assesses internal control, and some issuers need auditor attestation.
Applicability and detail depend on filer status and rules.
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