A United States federal law enacted on July 30, 2002, set new or enhanced standards for all U.S. public company boards, management and public accounting firms.
The purpose of the Sarbanes Oxley Act was to enhance corporate responsibility, financial disclosures and combat corporate and accounting fraud. The Public Company Accounting Oversight Board (PCAOB) to oversee the activities of the auditing profession was also created.
The act does not apply to privately held companies. It contains 11 titles, or sections, ranging from additional corporate board responsibilities to criminal penalties, and requires the Securities and Exchange Commission (SEC) to implement rulings on requirements to comply with the new law.
One major provision of Sarbanes-Oxley Act’s includes a requirement that public companies evaluate and disclose the effectiveness of their internal controls. This requirement drives the need for companies to have detailed information systems in place, including secure disposal of obsolete business records.
The Sarbanes Oxley law changed the way businesses retain records. While it does not specify specific business practices or how business should store records, it does specify how long records should be kept and which records need to be maintained. The act specifies that paper and electronic records must be kept for five years.
The act also covers issues such as auditor independence, corporate governance, internal control assessment, and enhanced financial disclosure.