Sarbanes-Oxley Act

Sarbanes-Oxley Act

Sarbanes-Oxley Act

Sarbanes-Oxley Act was named after Representative Michael Oxley and Senator Paul Sarbanes, who drafted it in 2002. The initial objective of the Sarbanes-Oxley Act was to protect investors through improving the reliability and accuracy of corporate disclosures that were made pursuant to the laws of securities and other purposes (Holt, 2008). Sarbanes-Oxley Act brought about new standards for corporate accountability and new penalties for acts of wrongdoing. It addresses the way in which executives and boards should relate with each other and auditors of the corporation.

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Sarbanes-Oxley Act was seen as the most reaching legislation that affected public corporation and their independent auditors since 30s. Sarbanes-Oxley Act is greatly credited for strengthening two primary areas of investor protection: increased engagement and professionalism on the part of corporate audit committee, and accountability and responsibility of CEOs and CFOs for all financial disclosures and related controls. However, Sarbanes-Oxley Act has been criticized for failing to prevent the circumstances that led to the 2008 financial crisis despite its success stories on investor protection (Chen & Huang, 2013).

Bazan, E., Fletcher, W. H., & Plette, T. N. (2008). The Sarbanes-Oxley Act: Implementation, significance, and impact. Hauppauge, NY: Nova Science Publishers
Chen, S., & Huang, C. (2013). The Sarbanes-Oxley Act, Earnings Management, and Post-Buyback Performance of Open-Market Repurchasing Firms. Journal Of Financial & Quantitative Analysis, 48(6), 1847-1876.

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