• Corporations must now be more accountable to investors.corporative business image by breezeart.us from Fotolia.com
  
  Following corporate financial scandals that seriously affected the economy and consumer confidence, Sen. Paul Sarbanes and Rep. Michael Oxley developed legislation to regulate financial practice and corporate governance, which was enacted in 2002. The Sarbanes-Oxley Act, also known as the Public Company Accounting Reform and Investor Protection Act, creates standards for corporate accountability and imposes strict penalties for violations.
  
  

Audit Services

• The Act establishes the Public Company Accounting Oversight Board, to provide independent oversight of public accounting firms providing audit services. If these firms provide a company with audit services, they may not provide it with accounting services such as bookkeeping; accounting; financial information systems design; actuarial, appraisal or valuation services; internal audit outsourcing; investment or brokerage services; legal services and any other service that the Board determines to be prohibited.
  
  

Transparency

• The Act calls for greater transparency and requires financial reports that contain financial statements to be prepared in accordance with the accounting principles set down in the Act. It also calls for disclosure of fiduciary transactions by every person who is "directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security", including directors, officers, stockholders and family members.
  
  

Executives

• To ensure that executives do not claim that they were not responsible for financial reports and statements, periodic financial reports and statements must be accompanied by a written certification statement by the chief executive officer and chief financial officer or their equivalents.
  
  

Penalties

• The Act imposes fines and up to 20 years imprisonment for "altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects" and fines and up to 10 years imprisonment "on any accountant who knowingly and wilfully violates the requirements of maintenance of all audit or review papers."