Background & History of SOX
The Sarbanes-Oxley (SOX Compliance) Act of 2002 mostly came about due to a great deal of national attention surrounding several financial and accounting scandals by major corporations in the early-to-mid 2000’s. These corporations, like Enron, Tyco International, AIG, Adelphia, Peregrine Systems, and WorldCom were discovered to have executives within each organization who falsified accounting records to either secretly steal money for themselves, or to disguise decreasing company earnings, which falsely maintained higher company stock prices.
Because of this, most of the corporations either failed or were sold off, and left in their wake thousands unemployed and billions of dollars lost
As a result, Congressmen Paul Sarbanes , D-Md., and Michael Oxley, R-Ohio, joined forces to create the SOX Act, creating an enforcement method with the goal of protecting shareholders and the general public from accounting errors and fraudulent practices in the enterprise, as well as improving the accuracy of corporate disclosures.
The Act became law on July 30, 2002 and is named after Sarbanes and Oxley, who sponsored it. The act set deadlines for meeting compliance and established requirement rules. Moreover, Congressmen Michael Oxley and Paul Sarbanes drafted the act to create more accountability in the corporate sector.
Effects & Benefits
The Public Company Accounting Oversight Board was created due to SOX, setting specific standards for audit reports. It obligates all auditors from public companies to register with them. Also, it prohibits accounting firms from doing business consulting with the companies they are auditing. They can still act as tax consultants.
SOX compliance is both a legal obligation and an effective business practice. Although, companies should behave ethically without the need for these standards. Implementing SOX has the added benefit of protecting a company from cyberattacks like malware and ransomware. Additionally, SOX compliance includes many of the practices of any data security plan.