What is the purpose of the Sarbanes-Oxley Act?

What is the purpose of the Sarbanes-Oxley Act?

• A. To provide tax relief for small businesses
• B. To establish regulations for auditing and financial practices
• C. To encourage international trade
• D. To protect intellectual property rights

Answer: (B)

The Sarbanes-Oxley Act, enacted in 2002, was created primarily to enhance corporate governance and accountability. It establishes critical regulations concerning auditing and financial practices within publicly traded companies. The act emerged in response to major financial scandals, such as those involving Enron and WorldCom, that exposed severe weaknesses in financial reporting and corporate oversight. By mandating stricter reforms on financial disclosures and holding corporate executives accountable for the accuracy of financial statements, the act aims to bolster investor confidence and facilitate greater transparency in financial reporting. This regulation includes requirements for independent auditing, internal controls, and the establishment of the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting profession. This focus on auditing and financial practices directly addresses the need for reliable financial information and improved ethical standards within the corporate environment, which is why this answer is considered correct.

The Sarbanes-Oxley Act, enacted in 2002, was created primarily to enhance corporate governance and accountability. It establishes critical regulations concerning auditing and financial practices within publicly traded companies. The act emerged in response to major financial scandals, such as those involving Enron and WorldCom, that exposed severe weaknesses in financial reporting and corporate oversight.

By mandating stricter reforms on financial disclosures and holding corporate executives accountable for the accuracy of financial statements, the act aims to bolster investor confidence and facilitate greater transparency in financial reporting. This regulation includes requirements for independent auditing, internal controls, and the establishment of the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting profession.

This focus on auditing and financial practices directly addresses the need for reliable financial information and improved ethical standards within the corporate environment, which is why this answer is considered correct.