The Sarbanes-Oxley Act (SOX) provides a legal model for running corporations of all sizes, regardless of whether they’re publicly traded and technically subject to SOX. The best legal minds agree that good liability-limiting governance after SOX requires corporations to do the following:
Sarbanes-Oxley Act was approved by President George Bush on 30 July 2002 and was later also approved shortly thereafter by the U.S. Congress. It gets its name from its two authors: Paul Sarbanes, Senator for the State of Maryland and Michael Oxley, a member of the U.S. Congress for the Republican Party. The law is often referred to colloquially to SOX or Sarbox.
College students preparing their research papers on the topic must know that Sarbanes-Oxley Act came into being as a reaction to the large corporate bankruptcies that shook American business around the turn of the millennium. The most famous was the bankruptcy of the energy company Enron in autumn 2001 when a large number of employees lost their paid-up pension savings and the shareholders lost their invested money. However, this was not the only example, as also the telecommunications company WorldCom, Tyco International, Adelphia, and Italian dairy group Parmalat may be mentioned.
According to section 404 of the Sarbanes – Oxley’s Act, the CEO and the CFO are tasked with maintaining the in-house regulation system of the organization. The external auditor is directly answerable to the audit committee and is entitled with the duty of providing the committee and company’s stakeholders with the guarantee on the dependability of the financial statements. The management is however expected to develop an effective system without relying on the external auditors report. This section considers the internal audit processes as part of the internal control system despite its being directly accountable to the audit committee (Botts, 2004). They provide an audit assurance to both the audit committee and the company’s management concerning the effectiveness of the financial and operational support systems.
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Enacted in the wake of corporate mismanagement and accounting scandals, Sarbanes-Oxley (SOX) offers guidelines and spells out regulations that publicly traded companies must adhere to. Sarbanes-Oxley guidelines offer best-practice principles for any company, especially those providing services to other businesses bound by SOX.