What significant change did the Sarbanes-Oxley Act of 2002 address?

The Sarbanes-Oxley Act of 2002 was primarily a response to the widespread corporate scandals and accounting failures associated with major corporations like Enron and WorldCom. These scandals highlighted significant deficiencies in corporate governance, financial practices, and the reliability of financial reporting. As a result, the Act introduced several important reforms aimed at enhancing transparency and accountability in financial reporting and corporate governance.

One of the key features of the Sarbanes-Oxley Act was the establishment of stricter regulations for financial disclosures, the requirement for companies to maintain comprehensive internal controls over financial reporting, and the imposition of severe penalties for fraudulent financial activity. This legislative change was specifically designed to restore investor confidence in the integrity of financial markets following the unethical practices that led to the collapses of these high-profile companies.

While there are many other components and effects of the Act, its foundation lies in addressing the regulatory gaps that allowed for the incidents involving Enron and WorldCom to occur, reaffirming the importance of ethical financial practices and protection for investors.