It also called for public company accounting reform and investor protection act 2002. When the accounting scandals of reputed companies are made public, the companies stand to lose the trust of the people. A quasi public agency named as public company accounting oversight board (PCAOB) was established to prevent companies from getting into fraudulent activities. It also helped to conduct proper investigations in this regard.
According to this act the public companies must disclose their internal account practices to make public their effectiveness. The independence of the auditor is to be maintained and any listed public company should have an independent audit committee to look over the relations between the auditor and the company. This enabled smoother interactions between the auditors and the companies. As more number of people are involved in the auditing process, any serious disagreement stood the chance of becoming public. The loans taken by directors and executive officers are restricted to prevent the public money from being misused. Previously they used to take money in form of unsecured loans. Public money was at stake as if any loss was reported, recovery of these loans would be difficult. Misuse of public money by the directors could be checked in this way. The reporting of insider trading was made compulsory to protect the interests of share holders. Insider trading was reduced to a large extent by imposing fines along with a sentence of imprisonment for executives who involve in that practice. Along with protecting the investments, provisions were also made to protect the employee's interests. These enabled employees and whistle blowers to file complaints regarding the harassment and dismissals in order to get quicker responses. The auditor's attestation was made mandatory and this made companies to be more responsible and accountable in their account practices and disclosures. The auditor, who attests, will be made responsible for any fraudulent disclosures in the statements, even at future. This makes the financial disclosures accountable.
The most important and critical section in the law which makes the disclosure of financial statements responsible is section 404. This section compels the management to establish internal controls in order to make them selves accountable for the details revealed in the financial statements. The companies have to certify that the internal controls were efficient and trouble free.
Sarbanes-Oxley Acts relationship and affect on Not-for-profit entities: The provision of restriction of loans to the directors of non profit organisation