ANSWERS: 1
  • The Sarbanes-Oxley Act, enacted in 2002 following a wave of corporate fraud scandals, was designed to make corporations more accountable to shareholders. The legislation is very extensive and requires more corporate disclosure, documentation and fees.

    Corporate Scandals

    Corporate scandals leading up to Sarbanes-Oxley involved Enron, Tyco, Adelphia, WorldCom and several other companies. Enron officers fraudulently created entities that made dubious transactions with Enron. CEO Jeffrey Skilling was also found to have misled shareholders about the financial health of the energy company.

    Legislation

    Sarbanes-Oxley was a bill sponsored by Sen. Paul Sarbanes (D-MD) and Rep. Michael Oxley (R-OH). The bill was signed by President Bush on July 30, 2002.

    Disclosure

    Investment research analysts are now required to make conflict-of-interest disclosures of their affiliations with the securities about which they make public comments. Corporate attorneys must now report SEC violations to the CEO.

    Audit

    The Public Company Accounting Oversight Board was established following Sarbanes-Oxley to set auditing standards for publicly held companies and their accounting firms, which must register with the board. Sarbanes-Oxley also put limitations on the services of auditors.

    Penalty

    Altering corporate documents to mislead federal law enforcement is now punishable by fines and 20 years in prison.

    Aftermath

    A new wave of corporate fraud scandals that included Bernie Madoff emerged from the stock market crash of 2008 as Sarbanes-Oxley critics questioned the usefulness of the complex law.

    Source:

    LegalZoom: Corporate Accountability: A Summary of the Sarbanes-Oxley Act

    "Journal of Leadership & Organizational Studies"; An Interview with U.S. Senator Paul Sarbanes; Nance Lucas , Summer 2004

    Resource:

    SEC.gov

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