How does the Sarbanes-Oxley Act affect corporate governance?

The Sarbanes-Oxley Act (SOX) significantly affects corporate governance primarily by mandating stricter regulations on financial disclosures. This legislation was enacted in response to high-profile financial scandals that eroded public confidence in financial reporting.

The core goal of the Sarbanes-Oxley Act is to enhance the accuracy and reliability of corporate disclosures, especially regarding financial statements. It establishes requirements for companies to implement internal controls over financial reporting, conduct regular assessments of those controls, and ensure that any discrepancies are reported. Additionally, it holds executives accountable for the accuracy of financial statements, including potential criminal penalties for fraudulent reporting.

With these stricter regulations, organizations are compelled to adhere to a higher standard of accountability and transparency. This not only protects investors but also reinforces the integrity of the capital markets. As a result, corporate governance is strengthened, as the Act encourages a culture of compliance and ethical business practices among companies, thereby enhancing overall corporate responsibility.

The other choices do not align with the primary intent and impact of the Sarbanes-Oxley Act. For instance, promoting employee benefits does not relate directly to financial reporting, while decreasing regulatory oversight contradicts the essence of SOX, which is to increase oversight. Limiting corporate liability also