Sarbanes Oxley Act
The series of corporate financial scandals that took place in the United States has led to the framing of new legislation called Sarbanes-Oxley Act. The Sarbanes-Oxley Act of 2002 (often shortened to SOX) is legislation enacted in response to the high-profile enron and worldcom financial scandals to protect shareholders and the general public from accounting errors and fraudulent practices in the enterprise. The act is administered by the Securities and Exchange Commission (SEC), which sets deadlines for compliance and publishes rules on requirements. Sarbanes-Oxley is not a set of business practices and does not specify how a business should store records; rather, it defines which records are to be stored and for how long.
Sarbanes Oxley Act is meant for bringing about the changes which affect both, auditors and the company which they audit. The auditors are required to make changes to the audit process. The auditor is now not completely being delegated the power to identify, document and evaluate the internal controls. He will require the management to do so.
Highlights:
Should recognize that the process and their decisions are valuable for internal controls.
Should enhance the company’s risk identification process.
Should enhance control consciousness throughout the company.
Should result in operating efficiency and reduce litigation of fraud.
There are basically three rules that affect the management of electronic records. The first rule deals with destruction, alteration, or falsification of records. The second rule defines the retention period for records storage. Best practices indicate that corporations securely store all business records using the same guidelines set for public accountants. The third rule refers to the type of business records that need to be stored, including all business records and communications, including electronic communications.
The law was intended to bolster public confidence in the nation’s capital markets and imposes new duties and significant penalties for non compliance on public companies and their executives, directors, auditors, attorneys and securities analysts.