Final answer:
The Sarbanes-Oxley Act of 2002 aimed to increase public confidence in corporate financial reporting and prevent accounting fraud, in response to scandals such as those involving Enron. Its effectiveness is debated; it has improved financial controls but increased compliance costs and impacted U.S. market competitiveness. The 2008-2009 recession further highlighted the need for effective regulatory foresight and action.
Step-by-step explanation:
The primary goal of the Sarbanes-Oxley Act of 2002 was to restore public confidence in the financial statements of public corporations. It aimed to do this by increasing transparency in financial reporting and by implementing stricter regulations to prevent accounting fraud. This legislative response came after a series of major accounting scandals involving companies like Enron and WorldCom, which severely shook investor trust.
Assessing the effectiveness of the Sarbanes-Oxley Act is complex. While it has certainly led to increased scrutiny of corporate financial practices, some have argued that it has also added significant compliance costs. Others suggest it has made U.S. capital markets less competitive compared to those in countries with lighter regulation. Overall, though, there's a general consensus that it has made company boards more accountable and improved internal controls over financial reporting.
Criticisms have also been directed towards bank regulators following the 2008-2009 recession, questioning why earlier action wasn't taken when initial signs of financial instability appeared. This indicates a continuous public desire for regulatory systems that not only set guidelines but can also effectively foresee and mitigate risks.