Sarbanes-Oxley Act: Meaning (information, definition, explanation, facts)

The Sarbanes-Oxley Act of 2002 (HR 3763), signed into law on 30 July 2002, is considered the most significant change to federal securities laws in the United States since the New Deal. It came in the wake of a series of corporate financial scandals, including those affecting Enron, Arthur Andersen, and WorldCom. The law is named after Senator Paul Sarbanes and Representative Michael G. Oxley.

Its major provisions include:

• Certification of financial reports by CEOs and CFOs
• Ban on personal loans to Executive Officers and Directors
• Accelerated reporting of trades by insiders
• Prohibition on insider trades during pension fund blackout periods
• Publicly revealing of CEO and CFO compensation and profits
• Additional disclosure
• Auditor independence, including outright bans on certain types of work and pre-certification by the company's Audit Committee of all other non-audit work
• Criminal and civil penalties for securities violations
• US companies are now obliged to have an internal audit function, which will need to be certified by external auditors.
• Significantly longer jail sentences and larger fines for corporate executives who knowingly and willfully misstate financial statements.
• Preventing audit firms from providing extra "value-added" services to their clients including actuarial services, legal and extra services (such as consulting) unrelated to their audit work.

Whilst addressing a number of domestic concerns, the Act has been criticised by foreign regulators for seeking jurisdiction over their national affairs.