Objectives of the Act

The US House of Representatives passed the Sarbanes-Oxley Act in the year 2002. This law as named after the two eminent persons Paul Sarbanes a democrat Senator and Michael Oxley a republican Representative. The Act is a complex piece of legislation directly aiming its guns on the management of the company.

The Act has made history in corporate America by making company executives personally liable for any fraud, misstatements in the preparation of the reports which show any kind of financial information relating to the financial health of the company. The chief objective of the Sarbanes-Oxley Act is the enhance the auditors independence, fixation of responsibility of preparation of the financial statements and enhancing the standards of reporting by the board of directors of all American Public companies and even public accounting firms.
The Sarbanes-Oxley Act is considered draconian as far as the penal clauses are concerned. Failure in compliance attracts a penalty of one million dollars which can go upto five million dollars if willful fraud is established. The Act provides for a jail term of upto 10 years for the offender if proved guilty.

The Sarbanes-Oxley Act strengthens the Securities law in force in the US by giving more teeth to the Securities and Exchange Commission which is the regulatory body for the publicly listed companies in the US.
The Sarbanes-Oxley Act is also known as SOX or SarbOx with its official name being Public Company Accounting Reform and Investor Protection Act of 2002. The Sarbanes-Oxley Act is a direct result of the Enron and WorldCom disaster when the investing public got a shock of their lifetime when the multi billion dollar companies filed bankruptcy. Billions vanished and nobody even came to know about it. When the facts came to light it was too late to save the companies. The Act consists of 11 main sections which fix corporate responsibility and provide criminal penalties.