The Sarbanes-Oxley Act of 2002 (SOX) is a U.S. federal law that changed financial reporting and audit oversight for public companies. Its practical core includes certifications by senior officers under Section 302 and management’s annual assessment of internal control over financial reporting under Section 404. Auditor attestation is required for some issuers, not all. Which duties apply depends on an entity’s issuer and filer status, exemptions, and implementing rules.
What is the Sarbanes-Oxley Act?
SOX is Public Law 107-204, enacted by Congress on July 30, 2002. The Securities and Exchange Commission (SEC) described it as sweeping corporate disclosure and financial-reporting reform adopted in response to events that had undermined confidence in U.S. financial markets. Read the enacted law, Public Law 107-204; see also the SEC’s Sarbanes-Oxley Act resource.
The statute addresses more than internal controls. It also covers auditor independence, audit committees, retention of audit records, and other governance and enforcement matters. These are distinct parts of the law, rather than a single checklist that applies identically to every business.
Who has SOX obligations?
Do not infer a company’s obligations simply from whether it is privately held or publicly known. Requirements depend on whether it is an issuer, its Exchange Act reporting status, the particular SOX provision, applicable filer category and exemptions, and current SEC rules. For a specific entity, confirm those details against current regulations or with qualified legal and accounting advisers.
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What does Section 302 require?
Section 302 directed the SEC to adopt rules requiring a company’s principal executive and financial officers—or people performing similar functions—to certify covered annual and quarterly reports filed under relevant Exchange Act provisions. The certification addresses whether the officer reviewed the report, the officer’s knowledge of material inaccuracies or omissions, and responsibility for disclosure controls and procedures. The statutory text is in Public Law 107-204.
This is a substantive accountability obligation, not merely a routine signature: it ties senior officers to review of the report and to specified responsibilities concerning disclosures. The exact reporting and certification requirements are set out in the SEC’s implementing rules.
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What does Section 404 require?
Management’s report and assessment under Section 404(a)
Section 404(a) calls for an annual report containing management’s internal-control report. It states management’s responsibility for establishing and maintaining adequate internal control over financial reporting (ICFR), and includes management’s assessment of the effectiveness of those controls as of the end of the fiscal year. See Section 404 of the enacted law.
Auditor attestation under Section 404(b)
Section 404(b) provides for a registered public accounting firm to attest to and report on management’s assessment for issuers to which that requirement applies. It is important to distinguish this auditor attestation from management’s own reporting and assessment: they are related responsibilities, but auditor attestation does not apply to every issuer. The applicable filer category, exemptions, and current SEC rules must be checked for the entity in question. The PCAOB’s standard for audits of internal control over financial reporting describes categories not subject to the Section 404 reporting requirements it discusses, including nonpublic companies and certain registered investment companies and issuers of asset-backed securities.
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What is the PCAOB’s role?
SOX created the Public Company Accounting Oversight Board (PCAOB) to oversee audits of public companies subject to securities laws and related matters. Under the statutory framework, the SEC oversees the Board. The law states that the PCAOB’s purpose is to protect investors and further the public interest in informative, accurate, and independent audit reports. The PCAOB’s statutory purpose appears in Section 101(a); the PCAOB explains its role.
The Board’s audit oversight is separate from management’s obligation to assess its own ICFR under Section 404(a). A PCAOB audit standard can govern relevant auditor work, while issuer coverage and reporting duties depend on the statute and SEC rules.
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How to identify the requirement that matters
For a practical first pass, work through these questions in order:
Quick Recap
- Identify the entity’s status. Determine whether it is an issuer and its Exchange Act reporting status.
- Name the provision. Establish whether the question concerns Section 302 officer certifications, Section 404(a) management reporting and assessment, or Section 404(b) auditor attestation.
- Check coverage. Confirm the applicable filer category, exemptions, and current SEC rules rather than assuming all issuers face the same requirements.
- Define the specific responsibility. Identify the relevant report, reporting period, controls, or audit work so that management and auditor duties are not conflated.
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