• Sarbanes-Oxley is landmark financial reform legislation.Reform image by Angelika Bentin from Fotolia.com
  
  In landmark legislation signed by President George W. Bush in 2002, the Sarbanes-Oxley Act sought to make corporate boards and leadership more accountable for the financial information that they published. Responding to the fallout from the Enron scandal, Congress enacted the law to build confidence in the financial reporting of publicly-traded companies. It specifies the internal control structures and reporting methods that are used to provide investors with the information they need to make financial decisions.
  
  

CEO and CFO Certification

• One of the most public components of Sarbanes-Oxley was the requirement that CEOs and CFOs must certify the integrity of the financial information being published. The principal officers of a corporation are now required to take ownership of the financial data that is published, making them less likely to look away if they are aware of fraudulent behavior. Specific civil penalties for officers are outlined in the act for failure to maintain this integrity.
  
  

Insider Trading

• Corporate officers who engaged in the act of trading their company’s stock, based upon information only they were aware of, was also an area of focus in the Sarbanes-Oxley Act. The new law prohibits the sale of corporate securities by officers of a corporation during certain specific times in a company’s history. The "blackout" periods specified are associated with days during which other investors are not able to sell or transfer the company's stock.
  
  

Outside Auditing Companies

• Section 201 of Sarbanes-Oxley changed the relationship between corporations and the large public auditing firms with which they conduct business. If Bob’s Accounting firm is providing a corporation with bookkeeping, actuarial, or legal services, for example, it is prohibited from also providing the corporation with auditing services as well. This prohibition is meant to do away with obvious conflicts of interest.
  
  

Internal Audit Requirements

• All financial reporting under Sarbanes-Oxley regulations must include a report of the internal audit controls that are in place. The audit functions must demonstrate how the corporation can express their confidence in the integrity of the information being reported. The control mechanisms must not only be reported, but are also subject to audit to ensure that they are sufficient.
  
  

Reporting of Officer Compensation

• The law requires that the method of compensation for chief officers be revealed and reported. In the past, executives whose pay was structured around stock value had motivation to manipulate stock prices to maximize earnings. Sarbanes-Oxley sought to minimize or do away with this practice by making the stock-option compensation public, reducing the opportunity for fraudulent manipulation of stock prices for personal benefit.