Sarbanes-Oxley (SOX) Act of 2002

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Definition of 'Sarbanes-Oxley (SOX) Act of 2002'

The Sarbanes-Oxley Act of 2002 (SOX), also known as the Public Company Accounting Reform and Investor Protection Act, is a United States federal law enacted on July 30, 2002, as a reaction to a number of major corporate and accounting scandals. The Act established a Public Company Accounting Oversight Board (PCAOB) within the Securities and Exchange Commission (SEC) and prescribed additional corporate governance requirements for public companies.

The Act was named after its sponsors, Senator Paul Sarbanes (D-Maryland) and Representative Michael Oxley (R-Ohio). It was enacted as a response to a number of major corporate scandals, including Enron, Tyco International, and WorldCom. These scandals had resulted in significant losses for investors and had shaken public confidence in the integrity of the financial markets.

The Sarbanes-Oxley Act was intended to address a number of perceived weaknesses in the financial reporting system. The Act requires public companies to maintain effective internal controls over financial reporting. It also requires companies to disclose material information about their financial condition and operations. The Act also imposes criminal penalties for fraud and other financial misconduct.

The Sarbanes-Oxley Act has been widely credited with improving the quality of financial reporting and corporate governance in the United States. However, the Act has also been criticized for being too complex and burdensome. Some critics have also argued that the Act has had a chilling effect on innovation and economic growth.

Despite the criticisms, the Sarbanes-Oxley Act remains a landmark piece of legislation that has had a significant impact on the financial reporting system in the United States. The Act has helped to restore public confidence in the integrity of the financial markets and has made it more difficult for companies to engage in financial fraud.

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