Week 8 Review of a Bill
In 2002, the Sarbanes-Oxley Act (also known as Public Company Accounting Reform and Investor Protection Act of 2) was created in response to several high-profile corporate scandals. This legislation is intended to safeguard investors and requires public companies to set up internal controls for financial disclosures and reporting. This legislation sets strict standards for the audit of these controls and penal penalties for those who violate or attempt to circumvent them. This Act requires that organizations disclose any relevant financial information to enable investors to make informed decisions.
The Sarbanes-Oxley Act applies to all organizations subject to the U.S. Securities Exchange Commission’s regulations, including publicly traded companies, brokers/dealers and investment advisors. The Act requires firms to comply with several provisions, including establishing codes and prohibiting loan from employers to employees. They also need whistleblower protections. Regular reviews and certifications of financial reporting compliance by executives are required. In order to properly audit their financial statements, the Act mandates that companies keep detailed records.
The Sarbanes-Oxley Act, in general, is a significant piece of legislation that promotes transparency and investor confidence through reducing fraud and unprofessional practices. Its provisions are intended to ensure that publicly traded companies are held accountable for how they manage investors’ funds while minimizing potential losses due improper or fraudulent activities.