Next year marks the 20th anniversary of the Sarbanes-Oxley (SOX) Act. The law was enacted in response to some high-profile cases of fraud and irregularities that caused the downfall of energy giant Enron, telecommunications giant WorldCom and other large companies. It also was the beginning of the end for accounting giant Arthur Anderson. The fallout caused a loss of public confidence in the information being by corporations.
Executives of these and other companies, generally aided by their accountants, were discovered to have been providing false numbers to hide liabilities and inflate assets in order to continue to attract investors to companies that were in serious financial trouble.
What did the SOX Act do?
The law, which is often just referred to as SOX, placed new requirements on all publicly held businesses and accounting firms employed by them for the reporting of their financial information. Among the requirements are the following:
- Businesses must have internal controls in place to make sure their financial statements are accurate.
- Executives must certify that all of their financial reporting is accurate.
- Employees who report violations of SOX have whistleblower protections.
- The Public Company Accounting Oversight Board (PCAOB) was created by the SOX Act to regulate accounting firms employed by public companies.
Criminal penalties for violations of the SOX Act
While violations of the SOX Act come with potentially millions of dollars in penalties. They also carry criminal penalties. federal criminal penalties. If an executive is convicted of certifying a financial report they know is inaccurate or non-compliant with the law or of falsifying or destroying records in order to interfere with an investigation, they can face 20 years behind bars in federal prison. Accounting and auditing professionals can be sentenced to as long as 10 years for failing to comply with the law.
The SOX Act also makes it a criminal offense to destroy or falsify records for the purpose of interfering with an investigation. This offense also carries a potential 20-year prison term for an executive. Further, accountants and auditors can face up to a 10-year prison term for violating the law, in addition to monetary penalties. If you find that you’re under investigation or are already facing charges relating to the SOX Act, it’s essential to get experienced legal guidance as soon as possible.