The Sarbanes-Oxley Act of 2002, sponsored by US Senator Paul Sarbanes and US Representative Michael Oxley, represents the biggest change to federal securities laws in a long time. It came as a result of the large corporate financial scandals involving Enron, WorldCom, Global Crossing and Arthur Andersen. Effective in 2004, all publically-traded companies are required to submit an annual report of the effectiveness of their internal accounting controls to the Securities and Exchange Commission (SEC).

The major provisions of the Sarbanes Oxley Act include criminal and civil penalties for noncompliance violations, certification of internal auditing by external auditors, and increased disclosure regarding all financial statements.

Section 404 (Management Assessment of Internal Controls) is perhaps the most contested of the Sarbanes Oxley Act sections as companies scramble to meet compliance. All annual financial reports must include an Internal Control Report stating that management is responsible for an "adequate" internal control structure, and an assessment by management of the effectiveness of the control structure. Any shortcomings in these controls must also be reported. In addition, registered external auditors must attest to the accuracy of the company management’s assertion that internal accounting controls are in place, operational and effective.