The Sarbanes-Oxley Act was created to protect investors from corporate accounting fraud. Named after its sponsors, Sarbanes and Oxley, it is variously referred to as "SOX" and "Sarbox," but its official name is the Public Company Accounting Reform and Investor Protection Act of 2002. It is considered by many to be the biggest overhaul of U.S. securities regulations since the New Deal.

The year 2001 saw the largest and most spectacular bankruptcy in American history: the Enron debacle. The collapses of Tyco and WorldCom were not far behind, and hundreds of thousands of investors lost millions upon millions of dollars. Investor confidence was badly shaken, and this spurred Congress to improve the accuracy and reliability of corporate disclosures.

Here are the major provisions of the act:

• CEOs and CFOs are held responsible for their companies’ financial reports
• Executive officers and directors may not solicit or accept loans from their companies
• Insider trades are reported more quickly
• Insider trades are prohibited during pension-fund blackout periods
• Mandatory disclosure of CEO and CFO compensation and profits
• Mandatory internal audits and review and certification of those audits by outside auditors
• Criminal and civil penalties for securities violations
• Longer jail sentences and larger fines for executives who intentionally misstate financial statements
• Audit firms may no longer provide actuarial, legal, or consulting services to firms they audit
• Publicly traded companies must establish internal financial controls and have those controls audited annually

This last provision is of concern primarily for large companies, and is commonly referred to as SOX 404 compliance. It requires publicly traded companies to institute comprehensive internal controls on their finances, as well as have their policies regularly reviewed by outside firms. While this might not affect your small business, it is having a significant impact on big ones: Companies with revenues of more than $5 billion are spending an average of $4.3 million just to achieve SOX 404 compliance!

So unless you are planning on taking your small company public very soon, Sarbanes-Oxley probably won't have any repercussions for your business. However, if you're an investor, SOX might allow you to sleep a little easier.