Final answer:
The Sarbanes-Oxley Act of 2002 is a federal law created to prevent accounting fraud, enhance financial disclosures, and protect investors following accounting scandals involving companies like Enron.
Step-by-step explanation:
The Sarbanes-Oxley Act (SOX) of 2002 is a United States federal law that was enacted in response to a number of major accounting scandals, including those involving Enron, Tyco International, and WorldCom. The act aims to enhance corporate governance and increase the accuracy and reliability of financial disclosures of companies, thereby protecting investors from the possibility of fraudulent accounting activities by corporations. SOX introduced stringent reforms to improve financial disclosures from corporations and to prevent accounting fraud.
SOX mandates strict reforms to improve financial transparency and accountability as well as corporate and criminal fraud accountability. It also covers issues such as auditor independence, corporate governance and enhanced financial disclosure. By doing so, the act seeks to increase confidence in the financial statements of publicly traded companies.