Question

Question 8:

Explain why the Sarbanes Oxley Act came into being and what are the main features of this Act and what it helps to achieve.

Answer 1

The Sarbanes-Oxley Act of 2002 is basically a law that the U.S. Congress passed on July 30, 2002 to help protect investors from fraudulent financial reporting by corporations. It mandated strict reforms to existing securities regulations and imposed tough new penalties on lawbreakers. The Sarbanes-Oxley Act of 2002 basically came because of financial scandals in the early 2000s involving publicly traded companies like Tyco International plc. These frauds shook investor confidence in the trustworthiness of corporate financial statements and led many to demand an overhaul of decades-old regulatory standards. FEATURES The rules and enforcement policies outlined in the Sarbanes-Oxley Act of 2002 amended or supplemented existing laws dealing with security regulation, including the Securities Exchange Act of 1934. The new law set out reforms in four principal areas: 1. Corporate responsibility 2. Increased criminal punishment 3. Accounting regulation 4. New protections Because of the act, corporate officers who knowingly certify false financial statements can be legally punished. Section 302 of the SOX Act of 2002 mandates that senior corporate officers personally certify in writing that the company's financial statements "comply with SEC disclosure requirements and fairly present in all material aspects the operations and financial condition of the issuer." Officers who sign off on financial statements that they know to be inaccurate are subject to criminal penalties.