Final answer:
The Sarbanes-Oxley Act requires organizations to maintain truthful financial reporting and to enforce stricter oversight to protect investors from fraud. It was introduced following some major corporate scandals to increase transparency and confidence in public corporations. Other regulations were also introduced for banks to prevent financial crises by ensuring the early identification and resolution of problems.
Step-by-step explanation:
The Sarbanes-Oxley Act of 2002, enacted in response to major accounting scandals involving organizations such as Enron, Tyco International, and WorldCom, requires organizations and their leaders to adhere to stricter oversight and to maintain accurate financial reporting. This act was designed to bolster investor confidence and protect them from accounting fraud by ensuring that public corporations provide reliable financial information. As a part of corporate governance, entities like the board of directors, auditing firms, and large shareholders play key roles in overseeing top executives and certifying the authenticity of the corporations' financial records. The failure of these institutions to do so, as evidenced in the case of Lehman Brothers, underlines the importance of such legislation.
In addition to Sarbanes-Oxley, new regulations were also introduced for banks, particularly after the 2008-2009 recession in the United States, requiring that bank supervisors disclose their findings publicly and act promptly upon discovering any financial issues. While these laws were established to preempt financial crises by ensuring transparency, the recession raised questions about the effectiveness of banking regulators in identifying and acting upon early signs of financial instability within banks before significant losses accrued.