History of the Sarbanes-Oxley Act
The Sarbanes-Oxley Act was named after the sponsors Senator Paul S. Sarbanes (D-Md.) and Representative Michael Oxley (R-Ohio), but its official title is the Public Company Accounting Reform and Investor Protection Act. It was enacted in 2002 to keep investors protected from corporate accounting fraud.
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Cause
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Enron filed for bankruptcy in 2001, and the company's accounting firm was convicted of obstruction of justice. This led to severe stock losses and overall loss of confidence in the market. Thus, Congress was prompted to put in place a set of provisions that would prevent future similar situations.
Purpose
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The Sarbanes-Oxley act made security fraud a federal crime and increased white-collar crime penalties. Due to the act, new responsibilities are also placed on corporate management and a new oversight board was created for accountants.
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Main Provisions
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Chief company executives and financial officers are responsible for the financial reports of the company and many not accept loans from their companies. Executive compensation and profits must be disclosed and internal audits and certification of audits is mandatory. Trades inside the company are reported more quickly and are prohibited during pension-fund blackout periods.
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References
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