What Is the Sarbanes-Oxley Act?
The Sarbanes-Oxley Act is a legislative act that relates to the management of risk and auditing. Its action also extends to corporate governance and “financial reporting of public companies” (The Sarbanes Oxley Act, n.d.). The act’s provisions are aimed at the prevention and punishment of corruption in companies and corporate fraud. The Act comprises 11 Titles, which address matters concerning publicity issuers and their auditors (Marchetti, 2016). This is one of the most influential laws in the field of the audit about financial disclosures.
Who Introduced the Act?
The Sarbanes Oxley Act was introduced by U.S. Representative Michael G. Oxley and U.S. Senator Paul Sarbanes, who hoped that the Act would provide “higher standards, more ethical behavior and the benefit of everyone” (The Sarbanes Oxley Act, n.d.).
When Was It Introduced?
The Act was presented in 2002 as a reaction to corporate scandals relating to powerful companies. After the debates between supporters and opponents of the law, Congress passed the Sarbanes Oxley Act.
Why They Came Up With the Act?
Corruption and accounting scandals in the U.S. actualized the necessity of appropriate regulation in the field of public companies’ finances. As a reaction to the scandals, the Act was created to increase the accuracy of financial reports and establish corporate ethical standards. According to Emanuel (2020), the Act implies that a company’s CEO or CFO (Chief Financial Officer) must “certify the accuracy” of each filling with the SEC (p. 127). It is indispensable to account for the finances and plays a crucial role in the avoidance of corporative scandals. Rechtschaffen (2019) claims that in that case, a corporate director understands that he or she is “personally liable under federal security laws” (p. 400). Thus, the Sarbanes Oxley Act increased the responsibilities of the people engaged in financial operations in public companies.
Emanuel, S. L. (2020). Emanuel law outlines for corporations. (8th ed.). Wolters Kluwer.
Marchetti, A. M. (2016). Beyond Sarbanes-Oxley compliance: Effective enterprise risk management (4th ed.). Wiley.
Rechtschaffen, A. N. (2019). Capital markets, derivatives, and the law: Positivity and preparation. Oxford University Press.
The Sarbanes Oxley Act. (n.d.). The Sarbanes Oxley Act. Web.