Sarbanes-Oxley Act

Federal legislation signed into law on July 30, 2002, that tightens financial rules governing corporations. It was passed in response to corporate debacles such as those involving Enron Corp. and WorldCom Group Inc. The wide-ranging legislation covers many topics: It requires companies to have audit committees that are made up of independent members, not corporate employees. It limits an auditor’s ability to provide consulting services. Companies also are required to provide more detailed financial information to investors. In addition, chief executive officers and chief financial officers must attest to the accuracy of their financial reports and their internal control systems. If these rules are violated, executives can be subjected to fines and/or jail terms. The legislation was named for Sen. Paul S. Sarbanes, D-Maryland, chairman of the Senate Banking Committee, and Michael G. Oxley, R-Ohio, chairman of the House Financial Services Committee.