Why did Congress pass the Sarbanes-Oxley Act of 2002?

The Sarbanes Oxley Act of 2002, which is officially called
the 'Public Company Accounting Reform and Investors Protection Act', was enacted in the
USA for the purpose of improving the statutory reporting system for public companies to
protect the interest of the investors. This act was formulated and passed as a
limitations of the previous statutory provisions were highlighted by major financial
scandals such involving major companies such as  as Enron, Tyco international, and
WorldCom.

The act covers issues such as auditor
independence, corporate governance, internal control assessment and enhanced financial
disclosures. Among other provision the act lays down lays down additional
responsibilities for the corporate boards and provides for criminal penalties. It
requires Securities and Exchange Commission (SEC) to implement rulings to implement the
provisions of the act. Accordingly SEC has created a Public Company Accounting Oversight
Board (PCAOB) to oversee, regulate, inspect and discipline accounting firms in their
role as auditors of public companies.