What is the purpose of the Sarbanes-Oxley Act of 2002?

The Sarbanes-Oxley Act of 2002 was enacted primarily to protect investors from accounting fraud and to improve the accuracy and reliability of corporate disclosures. This legislation came in response to several high-profile accounting scandals, such as those involving Enron and WorldCom, which significantly undermined public trust in financial markets.

The Act established strict reforms to enhance corporate governance and accountability. It requires companies to implement internal controls to safeguard against fraudulent financial reporting, mandates the regular certification of financial statements by senior corporate officers, and provides for increased penalties for corporate fraud. One of its key provisions is the establishment of the Public Company Accounting Oversight Board (PCAOB), which oversees the audits of public companies to ensure their compliance with applicable standards.

By promoting transparency and accountability within publicly traded companies, the Sarbanes-Oxley Act protects investors by ensuring they have access to accurate and truthful financial information, thus helping to restore confidence in the financial markets. This focus on investor protection distinguishes this Act from others that might revolve around technology and innovations, data privacy, or standardization of accounting practices.