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What is the Sarbanes-Oxley Act?

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Quick Answer

The Sarbanes-Oxley Act, signed into law on July 30, 2002 by President George W. Bush, is aimed at protecting investors from corporations' fraudulent accounting practices while mandating strict reforms to financial disclosures and stopping accounting fraud, according to Investopedia. The act also created the Public Company Accounting Oversight Board, which regulates auditors and the auditing profession.

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Full Answer

The act calls for a company's corporate officers to take responsibility for the validity and accuracy of the company's financial reports, reports Investopedia. Each company's chief financial and executive officers must certify and approve the financial reports issues each quarter by the company. The act also requires the CEO of the company to sign the company's corporate tax return.

The act prevents conflicts of interest when an outside auditor audits a company. Under the act, auditors cannot provide other services for the same client when they provide that client with auditing services. Furthermore, the act calls for audit partner rotating and sets standards for auditor reporting.

The Sarbanes-Oxley Act also sets forth specific criminal penalties for so-called white-collar financial crimes. This includes penalties for altering or destroying financial records or interfering with investigations. It also protects whistle-blowers who report illegal activity within a company. Learn more about Accounting

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