The Sarbanes-Oxley Act (SOX), passed in 2002, is federal legislation in the United States designed to enhance corporate governance and strengthen the integrity of financial reporting processes for companies. It was enacted in response to major financial scandals involving corporations such as Enron and WorldCom, which undermined investor confidence in financial disclosures and corporate governance.
SOX requires that publicly traded companies adhere to specific regulations concerning financial reporting, auditor independence, and internal controls. For example, under SOX Section 404, companies must document and verify their internal controls for financial reporting processes. This strengthens the transparency and reliability of financial statements.
A practical application of SOX might include a company ensuring its month-end close checklist complies with Section 404 by appropriately documenting reconciliation procedures and maintaining robust internal controls. This makes SOX-related practices relevant to platforms like Easy Month End, which facilitate the month-end close process and balance sheet reconciliations.