Question

Please explain the impact of the Sarbanes-Oxley Act on corporate governance.

Answer 1

Solution:

Impact of Sarbanes-Oxley Act on Corporate Governance

Sarbanes Oxley Act was enacted to restore investors confidence in the financial markets and to close loopholes that allowed public companies to defraud investors.

The act requires public companies to strengthen audit committees, perform internal controls tests, make directors and officers personally liable for accuracy of financial statements, and strengthen disclosures.

Following impacts of Sarbanes Oxley Act on Corporate Governanance

1) Strengthening of Public Companies Audit Committees

2) It reformed and re-empowered the corporate board of directors

3) It encouraged the adoption of corporate codes of ethics

4) It created the PCAOB – Public Company Accounting Oversight Board to oversee the independent auditors of public companies.

5) Clarified and complicated the role in house counsel

6) It made public companies more expensive to run