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On 30 July 2002, the United States signed into law, the Sarbanes-Oxley
Act. The Act mandated a number of reforms to enhance corporate responsibility,
enhance financial disclosures and combat corporate and accounting
fraud. It has effectively re-written the rules for corporate governance,
disclosure and reporting.
The Sarbanes Oxley Act 2002 was brought about by the need to restore
investor confidence in financial statements and the markets generally.
This Act affects public companies that are known as “Issuers”,
reflecting the fact that they issue securities on the stock exchanges
and are regulated by the SEC.
Definition of Corporate Governance
A popular definition for “corporate governance” is that
it consists of a process of checks and balances between the Board
of Directors and management to produce an efficiently functioning
corporation focused on producing long term value.
Legal and Regulatory Framework
A governance system is based on a legal and regulatory framework
creating a stable and reliable basis for fair business dealing based
upon best practices. The legal and regulatory framework varies from
country to country and will therefore create divergences in terms
of best practices to be applied to corporations and their dealings
with each other, their investors and the public.
Based on Best Practices
The cumulative impact of the Enron, WorldCom and other corporate
collapses has eroded market confidence and caused the authorities
to take a new look at how to recognize and manage risk within the
corporate environment. Recent legislative and regulatory changes,
including Sarbanes Oxley, are likewise causing a major rethink on
best practices to be applied within the corporate arena.
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