The Sarbanes-Oxley Act of 2002 is such a work of legislation that aims “to protect
investors by improving the accuracy and reliability of corporate disclosures made pursuant to the
securities law, and for other purposes.” It was introduced by the United States Congress as a
measure against fraud and the like after many popular instances, such as Enron, WorldCom, and
Tyco International. The major fraud scandals at the time caused the depletion of trust in financial
reporting, particularly those published by larger corporations, and caused many investors to call
for a shift in the laws and penalties associated with this type of financial accounting. The
legislation was implemented to put certain steps and requirements into place with the intention of
lowering, and hopefully altogether eradicating, the likelihood of successful fraud schemes by
corporations, as well as to impose deterrent penalties on any person or entity found guilty of
these acts.
The act was named after its sponsors, Senator Paul S. Sarbanes and Rep. Michael G.
Oxley, and focused on increasing corporate responsibility, accounting regulation, legal actions
against those found guilty of these crimes, as well as implementing new protections and
provisions deemed necessary. There are 11 titles that outline the provisions of the act,
definitions, and how they are to be put into place and maintained.
First is Title I – Public Company Accounting Oversight Board, which outlines the
establishment of the board with the intention of managing the auditing process relative to public
corporations, ensuring the appropriate compliance with the rules that have been established, and
overseeing the independent accounting firms tasked with providing these auditing services. It
speaks to matters such as the terms and conditions associated with serving on the board, the rules
of the board, registering with the board, the standards to which audits should be held as required
by the board, and the process of inspections of registered public accounting firms.
Title II – Auditor Independence defines and addresses the standards attached to external
auditor independence such as the pre-approval requirements, stipulations about the relationships
that an auditor may or may not have with a client, and how conflicts of interest may be handled.
It also speaks to auditor reporting requirements, and the restrictions attached to providing
auditing services to a given client.
Next is Title III – Corporate Responsibility, which states that the executive members of a
corporation are personally responsible for the insurance of the accuracy of the financial
documents that are presented by their company and the overall compliance with the act. It also
outlines the repercussions that would be brought about by the failure to do so, and emphasizes
