An Overview
The Sarbanes–Oxley Act of 2002 was enacted July 30, 2002
in the United States as part of the fallout from the Enron, Tyco
International, and WorldCom accounting scandals. Originally titled the
“Public Company Accounting Reform and Investor Protection Act” in the United
States Senate and the “Corporate and Auditing Accountability and
Responsibility Act” in the House of Representatives, the bill eventually
became called the Sarbanes–Oxley Act, or “SOX”. SOX set enhanced standards
for all public companies in the United States, including their boards,
management and public accounting firms. SOX is named after sponsors U.S.
Senator Paul Sarbanes (Democrat-Maryland) and U.S. Representative Michael G.
Oxley (Republican-Ohio).
SOX only affects public companies and does not apply to
privately held companies. The Act contains 11 sections. Each of these
sections adds new or enhanced guidelines in which public companies must
comply. In addition to creating numerous civil penalties, SOX also
contains criminal penalties. SOX requires the Securities and Exchange
Commission (“SEC”) to take a more proactive role in ensuring compliance with
accounting laws and to punish offenders. For instance, the chairman of the
SEC, Harvey Pitt, implemented dozens of rules related to SOX. One of these
new creations is the quasi-public agency, the Public Company Accounting
Oversight Board (“Oversight Board”), also known as the PCAOB. The Oversight
Board is responsible for regulating, auditing and disciplining accountants
and accounting firms.
