What is the purpose of the Sarbanes-Oxley Act?

The purpose of the Sarbanes-Oxley Act is to address the wave of corporate and accounting scandals that surfaced in the early 2000s, which significantly eroded public trust in the financial reporting of corporations. This legislation was enacted in response to major financial scandals involving large companies like Enron and WorldCom. The act aims to enhance the accuracy and reliability of corporate disclosures, improve corporate governance, and protect investors by mandating strict reforms and establishing new standards for all publicly traded companies and their management.

The Sarbanes-Oxley Act introduced various provisions, such as requiring CEOs and CFOs to certify the accuracy of financial reports, increasing penalties for destroying or falsifying records, and establishing the Public Company Accounting Oversight Board (PCAOB) to oversee the audit of public companies. These reforms are directly linked to rebuilding confidence in the integrity of financial markets and ensuring that companies adhere to high ethical standards in their reporting practices. The act is not focused on employee productivity, international trade regulation, or tax evasion, which are topics covered by separate legislative measures and frameworks.