Sarbanes-Oxley Act: A Legislative Law to Win Public Trust in American Financial Market By Peter Garant At Isnare.com Ezine Articles

Through a house vote of 423-3 and supported by a landslide vote in the Senate of 99-0, a significant federal law was conceived in July 30, 2002 which brought significant changes on the laws concerning America’s security market through the Sarbanes-Oxley Act of 2002. Known as the Public Company Accounting Reform and Investor Protection Act of 2002 the Act was authored by Senator Paul Sarbanes and Representative Michael G. Oxley in response to the series of scandals concerning corporate financial agencies.

The Sarbanes-Oxley Act is a legislative law designed and implemented to help enhance the policies and standards of U.S. public corporate and financial establishment firms. Restoring the public confidence on the U.S. security market is believed to be the aim of the Sarbanes-Oxley Act which has 11 sections concerning the added Corporate Board responsibilities, the criminal penalties involved and the Security and Exchange Commission’s responsibility of implementing requirements in compliance to the new legislation.

The legislative body finds it appropriate to implement the Sarbanes-Oxley Act acknowledging its significant role in strengthening the audit requirements that are designed to protect the investors through accurate corporate disclosures, establishment of an accounting oversight board, strengthen corporate responsibility, enhanced financial disclosure and auditor independence. In short the Sarbanes-Oxley Act is designed to extract accurate and reliable disclosures on about anything.

The Sarbanes-Oxley provides additional civil and criminal penalties for incurring securities violations and it promotes a longer jail sentence to executives who deliberately misstate their financial statements. The Act also provides larger fines for those who violate the legislative law while defining certain limitations on prohibiting auditing firms from providing extra services to corporate and financial agencies.

Publicly traded companies are also mandated by the Sarbanes-Oxley Act to submit an independent annual report on their audits concerning the internal controls involved related to financial reporting. The internal auditing procedures are supported with an external audit report to prevent misstatement of financial reports by the executives in authority thereby discouraging fraud.

Through the transparency system encouraged by the Sarbanes-Oxley Act all information regarding the engaged financial transactions of any US public financial company will be displayed in full disclosure that does not provide any chance for fraud to occur. The disclosed information will also include all flows of transactions such as how the transaction is initiated, supported, authorized, reported and processed. This information should be readily available at anytime when needed.

The main goal of this disclosure is to provide a clearer view when identifying any misstatements where fraud or error can possibly occur and who are the persons in authority responsible for the flaw. This strengthens the control and reporting processes involved directed to safeguard the assets of the stock holders through proper implementation of reliable guidelines and policies concerning the US financial market.

Public trust is won by the Sarbanes-Oxley Act as it provides more stringent policies and rulings concerning how the financial institutions of the US should be operated that provide better confidence of getting a more transparent system regarding the disclosure of reports and financial statements of each government corporate firm.

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