The Sarbanes-Oxley Act makes accountants more liable for the information they provide.
The Sarbanes-Oxley Act was passed in the summer of 2002 in response to a spate of fraud and accounting scandals from major companies like Enron and WorldCom. It is named for its bipartisan cosponsors, Sen. Paul Sarbanes and Rep. Mike Oxley. The Sarbanes-Oxley Act's purpose is to increase ethical standards and accountability. The act makes both accountants and chief executives personally liable for the information they report.
Conflict of Interest
If any external auditor who analyzes a company's statements has any conflict of interest, Sarbanes-Oxley requires the company to report this to the Securities and Exchange Commission (SEC). For example, if an auditor was paid by the person who prepared the company's financial report or, conversely, if the analyst owes a debt to the person who prepared the company's report, this information must be disclosed.
Personal Responsibility
Sarbanes-Oxley mandates that the corporate officers and senior executives take personal responsibility for the validity of their company's financial statements. These officers are required to certify and sign the financial statements once every quarter.
Auditor Independence
The act requires auditors to submit proof that they have enough independence from the company that they are eligible to act as an external auditor. This includes not accepting payment from the company for any other non-auditing service, and reporting their own income to the SEC.
Financial Disclosure
The Sarbanes-Oxley Act requires that all stock transactions between company executives and corporate officers be reported to the SEC.
Off-Balance-Sheet Transactions
The act requires that any financial transaction that is too small or extraordinary to be listed on the company's standard balance sheet be reported in the company's quarterly financial statements.
Corporate Tax Return
Sarbanes-Oxley mandates that the CEO sign--and therefore be personally responsible for the details contained within--the corporate tax return.
