- The Sarbanes-Oxley Act, also called Sarbox or SOX for short, was signed into law by President George W. Bush on July 30, 2002. The Sarbanes-Oxley Act was enacted in response to numerous corporate accounting scandals in which corporations or their accounting firms engaged in deliberate, institutionalized and systematically planned accounting and auditing fraud. In some instances, these actions were taken to boost stock sales. The Sarbanes-Oxley Act reformed American business practice and expanded criminal penalties for attempting to defraud shareholders. Adherence and compliance with the Sarbanes-Oxley Act is mandatory for all public organizations, regardless of size. The Act does not apply to privately-held companies.
- After Enron, WorldCom and other corporate scandals, the American public started to lose faith and confidence in the securities markets. The Sarbanes-Oxley Act was passed, in part, to restore the public's faith by providing protection to investors through the provisions in the Act which improved the accuracy, quality and transparency of financial reporting.
- One of the main provisions of the Sarbanes-Oxley Act was to create the Public Company Accounting Oversight Board, a private, non-profit corporation that sets standards for audit reports and oversees the auditors of public companies. This is done, in part, to protect the interests of investors, but also to ensure that the public receives fair, accurate and independent audit reports.
- The Sarbanes-Oxley Act is divided into 11 titles: the Public Company Accounting Oversight Board (PCAOB), Auditor Independence, Corporate Responsibility, Enhanced Financial Disclosures, Analyst Conflicts of Interest, Commission Resources and Authority, Studies and Reports, Corporate and Criminal Fraud Accountability, White Collar Crime Penalty Enhancement, Corporate Tax Returns and Corporate Fraud Accountability.
- In 2006, the Free Enterprise Fund challenged the constitutionality of the Public Company Accounting Oversight Board. The case was dismissed in 2008 and appealed, although an appellate court upheld the dismissal. The U.S. Supreme Court agreed to hear the case in 2009.
