Essay on sarbanes oxley act introduction and importance. (Essay Sample)

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Sarbanes-Oxley Act of 2002 is a law that was passed by the U.S. Congress whose function was to protect investors from being taken advantage of by corporations through their fraudulent financial reporting. The Act came in response to increased financial scandals that involved several U.S. organizations. Some of these companies include Enron, WorldCom, and Tyco International plc. All these organizations were involved in high profile scandals which had severe damage to the investors thus shaking their confidence regarding the trustworthiness of the organizational financial statements. Such acts compelled Congress to overhaul the old regulatory standards hence coming up with the Sarbanes-Oxley Act. The Act provides strict rules for corporate officers, auditors, and accountants. Besides, it also stipulates severe recording requirements that each organization needs to meet in the course of its operations. Above all, the Act came with increased penalties for violating the laws as revealed by David (2007).
Both management and accountants believe that the implementation of SOX has assisted in improving the internal processes and internal control testing within the organization. This, in turn, has helped in improving effectiveness and efficiency which has led to reduced costs. Besides, the management and accountants are also in the view that the Act has led to increased accountability and responsiveness financial reporting and corporate governance.