What did the Sarbanes-Oxley Act of 2002 require of publicly traded companies, and what was its purpose?

What did the Sarbanes-Oxley Act of 2002 require of publicly traded companies, and what was its purpose?

• A. Privatized all auditing functions.
• B. Strengthened corporate governance and financial disclosure; established the Public Company Accounting Oversight Board.
• C. Decreased reporting requirements for public companies.
• D. Relaxed the rules for external auditors.

Answer: (B)

The act responds to major corporate scandals by aiming to restore trust in financial reporting through tighter accountability and more transparent governance. It strengthens corporate governance and financial disclosure across publicly traded companies, and it creates the Public Company Accounting Oversight Board to oversee and set standards for audits of those companies. In practice, this means top executives must personally certify the accuracy of financial statements, companies must assess and report on internal controls over financial reporting, and auditors face tighter independence rules and greater oversight with stricter penalties for fraud. These measures together are designed to make financial information more reliable and deter misconduct, which is why this option is the best description.

The act responds to major corporate scandals by aiming to restore trust in financial reporting through tighter accountability and more transparent governance. It strengthens corporate governance and financial disclosure across publicly traded companies, and it creates the Public Company Accounting Oversight Board to oversee and set standards for audits of those companies. In practice, this means top executives must personally certify the accuracy of financial statements, companies must assess and report on internal controls over financial reporting, and auditors face tighter independence rules and greater oversight with stricter penalties for fraud. These measures together are designed to make financial information more reliable and deter misconduct, which is why this option is the best description.