The Sarbanes-Oxley Act of 2002 must be complied with by all businesses. The main idea is to prevent fraud and put practices into place that protect businesses from such.
What is Sarbanes-Oxley?
Sarbanes-Oxley is an Act that consists of 11 titles and 66 sections. Sarbanes-Oxley requires businesses comply with a number of controls to prevent financial loss because of fraud and unnecessary spending.
History
Sarbanes-Oxley was drafted after the stock market disaster of the late 1990s, when investors lost trillions of dollars. During that time, a small number of individuals made billions at the expense of these investors.
Key Elements
Sarbanes-Oxley forces business to be accountable for their actions, and to take responsibility to ensure their business practices are sound through the implementation of internal procedures and controls. These procedures and controls are then tested by auditors for compliance, and reported upon.
Cost
The average cost of Sarbanes-Oxley compliance is $1.7 million. It is expected these costs will drop each year as companies become familiar with Sarbanes-Oxley practices and employ staff to handle it as a department.
Benefits
The overall purpose of Sarbanes-Oxley is to reduce corporate costs and prevent fraudulent business practices. Sarbanes-Oxley improves financial practices and makes a business more efficient over time.
