The Sarbanes-Oxley Act

An Introduction to the Sarbanes-Oxley Act

The Sarbanes-Oxley Act was passed in 2002. This was largely driven a sharp decline of public trust in accounting practices, which was caused by a whole series of high profile corporate scandals, including Enron, Worldcom, and Tyco International.

The Sarbanes-Oxley Act contains eleven sections, ranging from specified Corporate Board responsibilities to criminal penalties. It created the PCAOB, or Public Company Accounting Oversight Board, which is an agency to regulate, oversee, inspect, and disciple accounting firms with respect to their public company audit role.

Essentially, the act:
    Required that public companies evaluate and disclose the effectiveness of their financial reporting internal controls and that independent auditors attest to this.
    Required certification of financial reports by CEO's and CFO's
    Required that companies listed on stock exchanges have fully independent audit committees t
    Required auditor independence
    Accelerated the reporting of insider trading, and Prohibited insider trades during pension fund blackout periods
    Enhanced the potential penalties for violations of securities laws and for willful misstatement of financial statements
    Offered employee protections for corporate fraud whistleblowers
The act had a dramatic impact upon IT, not least because financial reporting processes of most organizations are driven by IT systems. Frameworks such as COBIT and ISO 17799 had a new lease of life, and became important tools.


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