The Impact of the Sarbanes-Oxley Act

The Sarbanes-Oxley Act of 2002 was introduced to crack down on corporate fraud and restore investor confidence after scandals rocked the early 2000s. It created the Public Company Accounting Oversight Board to oversee the accounting industry and banned company loans to executives.

One of the key provisions of the Act is Section 404, which requires corporate executives to personally certify the accuracy of financial statements. Failure to comply could result in CEOs facing criminal charges and up to 20 years in jail.

Sarbanes-Oxley also established new requirements for auditors of public companies, such as the rotation of lead audit partners after five years and prohibiting accounting firms from providing consulting services to companies they audit.

Whistleblower protection is another important aspect of the Act, ensuring that employees who report fraud are safeguarded against retaliation by their employers.

While some critics argue that Sarbanes-Oxley is costly for businesses, particularly small companies, it has significantly increased investor confidence and strengthened auditing standards in the United States.