What Is the Sarbanes-Oxley Act?:
The Sarbanes-Oxley Act was signed into law on July 30, 2002. It was a regulatory reaction to the corporate scandals at Enron, WorldCom and Arther Anderson. It created the Public Company Accounting Oversight Board to oversee the accounting industry. To prevent the conflict of interest that led to the Enron fraud, auditors were prohibited from doing consulting work for their auditing clients. It banned company loans to executives, gave job protection to whistleblowers.
Corporate Executives Personally Responsible for Accounts:
Sarbanes-Oxley also required top executives to personally certify corporate accounts. Section 404 made managers responsible for maintaining “adequate internal-control structure and procedures for financial reporting." Companies' auditors had to “attest” to these controls and disclose “material weaknesses." Sarbanes-Oxley allowed for criminal penalties if fraud was uncovered. (Source: The Economist, Sarbanes-Oxley, July 26, 2007)
At the time, it was felt that Sarbanes-Oxley was too punitive, too costly to implement, and would make the U.S. a less attractive place to do business. In retrospect, it seems that Sarbanes-Oxley was on the right track. The lack of regulation in the banking industry has been blamed for the credit crisis and resultant recession.
