Lesson 52 - Advanced Accounting Course

Lesson 52: Sarbanes-Oxley Act (SOX) Compliance in Detail

🧠 What Is SOX?

The Sarbanes-Oxley Act (SOX) is a U.S. federal law passed in 2002 after big accounting scandals like Enron, WorldCom, and Tyco.

🎯 Goal: To protect investors from fraudulent accounting and improve the accuracy and reliability of corporate disclosures.

SOX applies to all public companies traded in the U.S. and their accounting firms.

⚖️ Why Was SOX Created?

SOX brought transparency, accountability, and stronger internal controls to corporate America.

🧩 Key Sections of SOX (Explained Simply)

🛡️ SOX and Internal Controls (Section 404)

One of the most important and complex parts of SOX is Section 404.

It requires companies to:

• 🧾 Design and maintain effective internal controls
  
  

• 🕵️‍♀️ Regularly test and evaluate those controls
  
  

• 📄 Provide an annual internal control report signed by top management
  
  

• ✅ External auditors must review and attest to this report
  
  

🧱 Many companies use the COSO Framework to meet these requirements.

👔 Who Must Comply with SOX?

🔎 SOX in Practice: Real-World Example

🧾 WorldCom Scandal:

• Inflated assets by over $11 billion
  
  

• Resulted in bankruptcy and criminal charges
  
  

• SOX laws were created in response to scandals like this
  
  

👨‍⚖️ After SOX:

• Executives must personally sign off on reports
  
  

• Auditors must be independent
  
  

• There are harsh penalties for misstatements
  
  

💥 Penalties for Non-Compliance

🧾 SOX Compliance Checklist

✅ CEO & CFO sign every quarterly & annual report
✅ Internal controls are documented and tested
✅ Segregation of duties is enforced
✅ Secure data storage & access controls
✅ Independent audit committee in place
✅ Regular training for staff on SOX rules

🧘 Ethical Impact of SOX

✅ Summary