What questionable practice did SOX address that was prevalent in firms like Enron?

The Sarbanes-Oxley Act (SOX) was enacted primarily to improve corporate governance and restore public confidence in the financial markets following major scandals, notably those involving companies like Enron. One of the fundamental issues that SOX aimed to address was the pervasive pressure on firms to manipulate earnings and engage in questionable accounting practices to present a more favorable financial picture than what was accurate.

This manipulation often derived from an organizational culture that prioritized short-term financial performance, sometimes encouraging executives and employees to overlook ethical considerations. SOX introduced several reforms, including stricter penalties for fraudulent financial activity and enhanced accountability for corporate executives and board members, thus seeking to curtail the practice of pressuring firms into unethical and misleading accounting methods.

By directly addressing these practices, SOX sought to protect investors and enhance the integrity of financial reporting, making the act a significant legislative response to the ethical failures that allowed companies like Enron to commit fraud and mislead stakeholders.