(a) Reason for Enactment and Issues Covered

The Sarbanes-Oxley Act (SOX) was enacted in response to major corporate and accounting scandals, including those involving Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom. These scandals led to billions in investor losses, shaking public confidence in the securities markets.

Issues Covered in the Act:

1. Regulation of public companies by the Securities and Exchange Commission (SEC).
2. New or enhanced standards for U.S. public company boards, management, and public accounting firms, excluding privately held companies.
3. Eleven sections covering corporate board responsibilities, criminal penalties, and SEC oversight for compliance with the new law.
4. Influence of the Enron scandal in advancing regulations to ensure reliable financial reporting and independence in auditing practices.

(b) Main Provisions Related to Corporate Accountability

1. Establishment of an internal control system.
2. Management’s responsibility for the accuracy and fairness of financial statements.
3. Requirement for at least one audit committee member to be a financial expert.
4. Preservation of audit working papers for at least seven years.

(c) Merits of the SOX Act

1. Boosts investor confidence.
2. Results in more accurate and reliable financial statements.
3. CEOs and CFOs now take responsibility for financial statements under Section 302.
4. Reduces conflicts of interest by restricting auditors from offering consulting services to their audit clients.
5. Restores trust in U.S. markets through increased accountability, faster reporting, and independent audits.
6. Enhances board, audit committee, and senior management engagement in financial reporting and controls.