Final answer:
SOX aims to improve corporate internal controls by establishing rigorous regulatory requirements for financial reporting and corporate governance, following significant accounting scandals that eroded investor trust. It enforces internal control structures, independent auditing, and increased transparency to safeguard investors from inaccurate financial information.
Step-by-step explanation:
The Sarbanes-Oxley Act (SOX) was established to improve the internal controls within corporations, ensuring the accuracy and reliability of financial reporting. This act was a response to major accounting scandals involving companies such as Enron, Tyco International, and WorldCom, which had a profound impact on investor trust. SOX regulatory requirements are aimed at increasing transparency and accountability in corporate governance and financial practices.
In response to the question about how SOX aims to improve corporate internal controls, the act imposes stringent measures on corporations. These measures include mandatory internal control structures, independent audit committees, and increased financial disclosures. The board of directors plays a critical role in monitoring executives, and auditing firms are hired to review financial records and certify their accuracy. In cases such as Lehman Brothers, where corporate governance failed to provide accurate information, SOX serves as a safeguard by holding companies and their management accountable for any discrepancies in financial reporting.