Sarbanes-Oxley Act of 2002 - Research Paper Example

Many firms have been able to meet these long-standing regulations by relying on the domain knowledge while the periodic regulations were met through the knowledge from corporate legal staff. However, this system has since changed and adapted a new regulatory environment that includes the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley). All the publicly traded companies are required to comply with this new act; changing the regulator culture from the initial legislative act. Sarbanes-Oxley and a host of other related regulations has fostered for the governance, risk and compliance aspects of regulations for both American-based and international companies.

The congress enacted this act with the aim of mitigating unprecedented financial fraud. Its core objective is to ensure the accuracy and legitimacy of corporate financial disclosures for purposes of safeguarding the interests of investors and other shareholders. Before the introduction of this act, most of the public corporations were reluctant to abide by some of the regulations such as complying with the environmental reporting requirements. With the introduction of the Sarbanes-Oxley act, more accountability has been realized and tougher penalties have been set for defaulters, compelling most of the organizations to abide by the set regulations.

This is a clear indication of the efficiency of the act in minimizing fraud (Orin, 2008). Sarbanes-Oxley also requires that the SEC undertakes regular reviews on financial reports in a systematic and professional manner for the reporting companies. The scope of this review encompasses environmental liabilities to ascertain whether the system is in compliance with regulations. The top executive officials of the firm are obligated to ensure accurate and authentic disclosure of potential liabilities to the public domain.

With increased scrutiny and accountability, the regulatory act works to avoid fraud now and in the future (Orin, 2008). As documented in the