Question

Why was the Sarbanes-Oxley Act passed? What are the key provisions of the Act?

Answer 1

The Sarbanes-Oxley Act was passed in the year 2002 was a Public Companies Accounting Reform and Investor Protection Act of 2002. It was passed to keep a check on the white-collar crimes in the corporate world. This has been passed in response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, and World Com.

The key provisions of this Act include:

1. Public Company Accounting Oversight Board (PCAOB) is created.

2. Audit Committee and the Auditor were given more independence

3. Restriction on personal loan to Directors/Executive Officers of a Company.

4. Rigorous and strict reporting on Insider trading by the Auditors.

5. Managerial personal were been provided more responsibilities with higher penalties and prosecutions on the breach.