Question

How did the Saranes-Oxley Act of 2002 impact boards of directors?

Answer 1

Sarbanes-Oxley Act came into existence in response to the public outcry for the financial misconduct of the Public companies as faced by the shareholders and public. Accordingly, this Act became part of the US Federal law that emphasizes upon the Corporate responsibility, transparency in business and the Auditing accountability of the Public companies, as an expansion of the already existing accounting acts that govern the activities undertaken by the Public companies. This is the intended outcome of Sarbanes-Oxley Act. It is further intended to complement the current existence of the code of ethics in a major way.

With regards to the Board of Directors, the Board of Directors are required to set audit committees and also decide to convene the audit meetings regularly, in the sense that at least 10 times a year instead of earlier three to four times. In addition, since this Act has come into existence to ensure that the Public Companies undertake the ‘Best practices’, it clearly states that the position of Chairman and CEO must be help by two different persons so that the scope of malpractices reduces. Moreover, when constituting the Audit Committee, there needs to be inclusion of at least one member who is a financial expert.