Final answer:
The Sarbanes-Oxley Act mandates publicly traded companies to establish a code of ethics to increase transparency and prevent accounting fraud, thus protecting investors.
Step-by-step explanation:
According to the Sarbanes-Oxley Act of 2002, it is indeed required that all publicly traded companies must establish a code of ethics. This requirement came into effect as a response to major accounting scandals of the early 2000s. The enactment of Sarbanes-Oxley aims to enhance corporate responsibility, provide more transparency in financial reporting, and prevent accounting fraud, thereby protecting investors and strengthening public confidence in the financial markets.
One of the provisions specifically requires senior financial officers to adhere to a code of ethics promoting honest and ethical conduct, proper handling of actual or apparent conflicts of interest, and full, fair, accurate, timely and understandable disclosure in reports and documents that the company files with, or submits to, the Securities and Exchange Commission (SEC) and in other public communications made by the company.