Vareto Finance Glossary
Sarbarnes-Oxley Act (SOX)
SOX of Sarbanes-Oxley Act is a U.S. federal law that is designed to protect investor interest by mandating reliable and accurate corporate disclosures. This Act came into existence after the Enron and WorldCom accounting scandals.
The SOX standard requires companies to define internal controls to achieve the goals set by regulators. For example, access control, backup systems, segregation of duties, change management, cybersecurity solutions, etc.
Why it matters
Since the Sarbanes-Oxley act implementation, accounting frauds and related financial crimes have significantly come down. It deters companies from overstating key financial figures and misleading investors. The cost levied by SEC far exceeds the potential benefit that companies could gain from financial misreporting. Thus, investors are better positioned in gaining access to complete and reliable data for their investment decisions.
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