The Sabranes-Oxley Act
In the wake of the Enron and WorldCom scandals in the late 1990’s and early 2000’s, the American public was concerned about the scandals in accounting practices of corporations and accounting firms. Corporations, such as Enron, WorldCom and Tyco International, and accounting firms, such as Authur Anderson, went out of business (Horngren, 2009).
Congress enacted The Sabranes-Oxley Act of 2002 to resolve such concerns. This act was brought to the United States Senate as “Public Company Accounting Reform and Investor Protection Act” and “Corporate and Auditing Accountability and Responsibility Act” in the United States House of Representatives. It is commonly called Sarbanes–Oxley, Sarbox or SOX and named after the U.S. politicians that constructed this legislation - Senator Paul Sarbanes and Representative Michael Oxley. The purpose of SOX is to begin “major changes to the regulation of financial practice and corporate governance” (n.d, 2006).
SOX created new standards for corporate accountability and penalties for acts of wrongdoing. It changes how corporate boards and executives must interact with each other and with corporate auditors.

SOX Relation to Internal Control

According to the textbook, internal control is comprised by five components: Monitoring of controls, Information systems, Control procedures and Risk assessment (Horngren, 2009).
SOX included new internal controls and procedures designed to ensure the validity of their financial records.
Monitoring of Controls is in direct relation to title I, section 103 of SOX -Auditing, Quality Control, And Independence Standards And Rules. It states the requirements for internal and external auditing quality control regulations, and ethics standards (n.d., 2002).
Information systems are in place so that those in command need “accurate information to keep track of assets and measure profits and losses” (Horngren, 2009). To ensure this, Title IV, section 401 of SOX (Enhanced Financial Disclosures) gives the regulations for accounting practices. (n.d., 2002)
Control procedures are in place to aid in meeting the business’ goals and control environment dictates the regulations for the heads of the businesses. Title III, section 302 (Corporate Responsibility for Financial Reports) and Title I, section 101 (Establishment; Administrative Provisions) defines what is looked for in the heads of the company (n.d., 2002). Risk Assessment is in place to identify and assess risks the company. If SOX is not adhered to, there are penalties. For example, if risk management protocols are not followed, according to Section VIII, section 802 - Corporate and Criminal Fraud Accountability (Criminal Penalties for Altering Documents) states that there are penalties of fines and/or imprisonment for “altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation” (n.d, 2006).