Sarbanes Oxley Act Flashcards, test questions and answers

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What is Sarbanes Oxley Act?

The Sarbanes-Oxley Act (SOX) of 2002 was passed in response to a wave of corporate scandals which rocked the American economy. It is seen as one of the most sweeping pieces of legislation in American history, and it ushered in sweeping changes to the way corporations are regulated. The act addresses several areas, including financial disclosure requirements, enhanced internal controls and procedures for preventing fraud, improved auditing standards and increased enforcement powers. SOX also created an independent oversight board known as the Public Company Accounting Oversight Board (PCAOB).At its core, SOX is designed to increase transparency between companies and their shareholders by providing greater clarity on how businesses operate financially. By requiring companies to maintain accurate books and records that accurately reflect their financial performance, investors can make sound decisions about where they choose to put their money. Companies must also disclose any material events that may have an impact on their finances or operations so that investors can assess risk before investing. Additionally, SOX requires top executives at publicly traded companies to certify each quarter’s financial statements as true and accurate; if they fail to do this honestly then they are subject to significant fines and penalties.The ultimate goal of SOX is twofold: firstly, it seeks to provide greater protection for shareholders from fraudulent behaviour within a company; secondly it aims to restore investor confidence in markets by creating more transparency around corporate activities and dealings. This has been achieved through numerous regulations such as mandating better accounting practices throughout organizations which help protect against deceptive business tactics while ensuring full compliance with all statutes related with public trading entities under federal law. In sum, the Sarbanes-Oxley Act represents an effective tool for combating corporate fraud while restoring faith in public market investments across America’s capital markets system.