The Sarbanes-Oxley Act Of 2002

What is Sarbanes-Oxley?

The Sarbanes-Oxley Act of 2002, commonly known as Sarbanes-Oxley or SOX, created expanded requirements for public companies, senior management, boards of directors, and accounting firms. The act is more formally known as the Public Company Accounting Reform and Investor Protection Act of 2002.

It was passed with wide bipartisan support in both the House and Senate in response to a wave of accounting scandals at Enron, WorldCom, Tyco, and other companies.

Its name comes from the names of the bill’s sponsors: Paul Sarbanes, a Democratic Senator from Maryland and head of the Senate Banking Committee; and Michael Oxley, a Republican Congressman from Ohio and Chairman of the House Financial Services Committee.

Sarbanes-Oxley is administered and enforced by the Securities and Exchange Commission (SEC). Its primary goal is to improve corporate governance and accounting practices and to boost the confidence of investors in the integrity of public financial markets.

Sarbanes-Oxley also created the Public Company Accounting Oversight Board (PCAOB), a non-government organization to oversee the public accounting profession and audits of public companies. It has five independent members and a substantial professional staff.

Requirements of Sarbanes-Oxley

Among its various provisions, Sarbanes-Oxley Act requires that:

  • the CFO and CEO of a public company certify the accuracy of a company’s financial statements and related public disclosure;
  • public companies establish internal controls to provide for the accuracy and adequacy of public reporting to investors; and
  • the board of directors establishes an audit committee comprised of members who are independent of company management and responsible for the appointment, compensation, and oversight of the company’s external auditor.

Sarbanes-Oxley also mandates criminal penalties for individuals who alter or destroy corporate records or retaliate against whistleblowers.

Violations of Sarbanes-Oxley

Some violations of Sarbanes-Oxley include:

  • incorrect and misleading financial statements;
  • destruction of company records;
  • inadequate internal controls over financial reporting;
  • incorrect application of the appropriate accounting standard;
  • material weaknesses in external audits; and
  • inappropriate collaboration between auditors and company staff.

Whistleblowers can play an important role in helping the SEC identify and prosecute violations of Sarbanes-Oxley or other provisions of federal securities laws. Whistleblowers can, however, experience challenges as cases proceed through the enforcement process, which can often be lengthy and complicated. This requires experienced SEC whistleblower lawyers to provide strategic advice, support, and a watchful eye.

Attorneys Scott Silver and David R. Chase are nationally recognized securities lawyers. They have extensive experience representing SEC whistleblowers.

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If you think you qualify as a whistleblower for the SEC, contact us at 1-800-975-4345. You can also reach out online.