What is the purpose of the Sarbanes-Oxley Act?

The Sarbanes-Oxley Act, enacted in 2002, primarily aims to improve corporate governance and accountability in response to major corporate scandals that shook public trust in financial markets, such as those involving Enron and WorldCom. The act establishes new or enhanced standards for corporate accountability, requiring greater transparency in financial reporting and promoting ethical business practices among corporations. This includes implementing stricter penalties for corporate fraud and ensuring that senior executives take responsibility for the accuracy of financial statements.

While the act does address issues related to public trust and enhances penalties for white-collar crimes, its core purpose is to create a regulatory framework that fosters greater oversight and control over financial practices. Ultimately, the legislation seeks to protect investors and restore confidence in the integrity of corporate reporting, fulfilling its main objective of establishing robust standards for corporate governance.