1. SARBANES–OXLEY ACT
The Sarbanes–Oxley Act published in 2002, also known as the 'Public Company Accounting Reform
and Investor Protection Act' (in the Senate) and 'Corporate and Auditing Accountability and
Responsibility Act' (in the House) and more commonly called Sarbanes–Oxley, Sarbox or SOX, is
a United States federal law that set new or enhanced standards for all U.S. public company boards,
management and public accounting firms. It was named after sponsors U.S. Senator Paul Sarbanes
and U.S. Representative Michael G. Oxley.
WHO ARE ACCOUNTABLE??
Sarbanes-Oxley act establishes a system to take in account the following acts:
 Federal oversight of corporate accounting practices
 Fraudulent financial reporting
 Corporate fraudulent
MERITS
 It eliminates the conflict of interest by prohibiting the accounting firms from providing both
auditing and consulting services to the same client companies for at least three years without
special permission from the client firms auditing committee
 The law made top managers accountable relating the financial reports and statements
 The law gave the board investigatory and disciplinary power over auditors and securities
analysts who issue reports about corporate performance and health
CONCERNS
 May impose heavy requirements on executives
 Some people think that act will not be enough to stop those executives who want to lie, steal,
manipulate.
 Cause many firms to restate their financial reports to avoid penalties.
It contains 11 elements but some of major are explained below:
PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD
Public Company Accounting Oversight Board provide the following:
 Independent oversight of public accounting firms providing audit services ("auditors").
 Creates a central oversight board tasked with registering auditors, defining the specific processes
and procedures for compliance audits, inspecting and policing conduct and quality control, and
enforcing compliance with the specific mandates of act
 Registration of public accounting firms

2. AUDITOR AND ANALYST INDEPENDENCE
 IT establishes standards for external auditor independence, to limit conflicts of interest
 It also addresses new auditor approval requirements, audit partner rotation, and auditor reporting
requirements. It restricts auditing companies from providing non-audit services (e.g., consulting)
for the same clients.
ENHANCED FINANCIAL DISCLOSURES
 It describes enhanced reporting requirements for financial transactions, including off-
balance-sheet transactions, pro-forma figures and stock transactions in true condition of
corporate officers. It requires internal controls for assuring the accuracy of financial reports
and disclosures, and mandates both audits and reports on those controls.
WHISTLE-BLOWER PROTECTION
 The act intends to motivate employees through whistle-blower protection that would restrict
the employer from taking action against whistle-blower (a person who disclose an unethical
act). If provided information proved wrong then he will be penalised.
CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY
 It is referred to as the "Corporate and Criminal Fraud Accountability Act of 2002". It describes
specific criminal penalties for manipulation, destruction or alteration of financial records or other
interference with investigations, while providing certain protections for whistle-blowers
COMPLIANCE COST
 The compliance cost of SOX is estimated at $1 million per $ 1.7 billion in revenue
 In a survey by FEI (Federal Executive International) shared details that cost of compliance
exceeded the benefits.
 The cost of compliance is so high that small companies become unable to follow the act.
 It contains a sanction which has three main issues:
 Management maintain reliable internal financial records
 Top management attest to the reliability of those controls and accuracy of financial
statements that results from those controls
 An independent auditor further to attest the statement made by the management