What was the primary purpose of the Sarbanes-Oxley Act of 2002?

The primary purpose of the Sarbanes-Oxley Act of 2002 was to establish auditing and financial regulations for public companies. This legislation was enacted in response to major corporate and accounting scandals, which highlighted the need for greater transparency and accountability in financial reporting. The act introduced significant reforms aimed at improving the accuracy and reliability of corporate disclosures, ultimately protecting investors and restoring confidence in the financial markets.

One of the key components of the Sarbanes-Oxley Act is the requirement for stricter regulations surrounding financial reporting and internal controls. It mandates that companies establish internal controls for financial reporting, maintain adequate documentation for compliance, and undergo annual audits by an independent auditor. Additionally, the act holds corporate executives personally accountable for the accuracy of financial statements, thereby emphasizing the importance of integrity in corporate governance.

This legislative framework is crucial for maintaining the trust of investors, as it helps to prevent fraudulent activities and financial misrepresentations in public companies. The focus of the Sarbanes-Oxley Act is specifically on corporate governance, financial accountability, and investor protection, distinguishing it from other options that do not align with its primary intent.