Sarbanes-Oxley Act of 2002

Sarbanes Oxley Act of 2002

Legislation in the United States, passed in 2002, intended to increase transparency in accounting practices. It was adopted in the wake of a series of scandals involving aggressive accounting on the part of a number of major accounting firms, notably Arthur Andersen. Among other provisions, it created the Public Accounting Oversight Board to regulate accounting firms that provide auditing services. It established and enhanced provisions for auditor independence and financial disclosures to limit potential conflicts of interest. It introduced a requirement that the chief executive officer must sign a corporation's tax return and enhanced punishments for white collar crime. Proponents argue that the Act has increased transparency in public accounting, while critics contend that it has driven business outside the United States.

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Sarbanes-Oxley Act of 2002.

Named after its main Congressional sponsors, Senator Paul Sarbanes and Representative Michael Oxley, the Sarbanes-Oxley Act of 2002 introduced new financial practices and reporting requirements, including executive certification of financial reports, plus more stringent corporate governance procedures for publicly traded US companies. It also added protections for whistleblowers.

Officially the Corporate and Auditing Accountability, Responsibility, and Transparency Act, the law is known more colloquially as SarbOx or SOX. It was passed in response to several high-profile corporate scandals involving accounting fraud and corruption in major US corporations.

The law also created the Public Company Accounting Oversight Board (PCAOB), a private-sector, nonprofit corporation that regulates and oversees public accounting firms.

The law has seen its share of controversy, with opponents arguing that the expense and effort involved in complying with the law reduce shareholder value, and proponents arguing that increased corporate responsibility and transparency far outweigh the costs of compliance.

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Sarbanes-Oxley Act of 2002 (SOX)

Also known as the Public Company Accounting Reform and Investor Protection Act of 2002.This Act is a federal law that was passed in response to the major accounting scandals and resulting corporate crashes in the beginning years of the twenty-first century. The law imposes enhanced accounting and disclosure standards on public companies, including REITs. In particular, the balance-sheet treatment of real estate values to reflect economic obsolescence,potential contamination,and short-term lease expirations with key tenants are critical issues.It has an indirect impact on private companies because many insurers and lenders are imposing the same requirements on all customers. Further, an exit strategy that depends on selling real estate assets to public companies will need to implement SOX-compliant controls early to facilitate due diligence and obtain the highest price.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.