Question

In the context of the world of business, explain what we mean by the term compliance. Relating to this, is anyone familiar with the Sarbanes-Oxley (SOX) legislation enacted by Congress in 2002? What was contained in this legislation, and what prompted it? Can you provide a specific example of one of the major points of this legislation? Why was it enacted? Separately, does the term compliance apply to any other areas of business besides the SOX legislation?

Answer 1

Compliance means the rules and regulations which are stated in the particular law and if we are not following these rules then it leads to non- compliance. In simple terms, we have to abide with all rules and regulation stated in law as per US Government.

SOX legislation is enacted by Congress in 2002 to protect the interest of shareholders who invest their monies in public limited companies by verifying their book of accounts or nay fraudulent practices made by the enterprises.

In SOX Act, it is written that this Act applies to all public companies both on Financial and income tax level. The Act specifies the IT department how to store the financial records of the enterprise but it will state the accounting department how to record the book of accounts but it will mention the duration of keeping the book of accounts. Companies should store all business records for not less than 5 years and if any one fails to do then he will be charged for fine or imprisonment or both.

This Act is enacted to protect the interest of shareholders and to control corporate fraud. It prohibits to give corporate loans to the executives and applies to all companies whether it is domestic or foreign which are registered equity or debt securities under the Securities Exchange Act.

This act does not only applies to business purpose but it also protect the interest of investors by improving the accuracy and reliability of corporate disclosures.