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What is Sarbanes-Oxley?

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The Sarbanes-Oxley Act of 2002 protects investors in publicly traded companies by requiring employees to improve the "accuracy and reliability of corporate disclosures,” according to SOX-Online's Sarbanes-Oxley Information Center. SOX defines individual accountability and requires employees to practice due diligence and outlines criminal and financial penalties for specific misconduct.

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Many of Sarbanes-Oxley’s reforms are basic, such as requiring chief executive officers to sign corporate tax returns. Of the Act’s 11 sections, the most important, according to SOX-Online, are: Section 201, Prohibited Auditor Activities; Section 302, CEO's and chief financial officers' new responsibilities regarding corporate reports; Section 404, Management Assessment of Internal Controls; Section 409, Real Time Disclosure; Section 802, criminal penalties for altering documents, Section 806 whistleblower protection; and Section 807, criminal penalties for fraud.

Following the failure of Enron in December 2001, in the wake of accounting scandals at major corporations Adelphia, Peregrine Systems and others, Congress proposed legislation to reform governance of public companies to make boards of directors, CEOs and chief CFOs accountable for corporate misconduct, according to Wikipedia. Sarbanes-Oxley makes employees at public companies individually responsible for providing true and accurate information about companies’ financial statuses and practicing due diligence to secure proprietary information on investors, customers and contractors.

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