Final answer:
The Sarbanes-Oxley Act requires external auditors to be hired by and report to the board of directors. They play a crucial role in reviewing and certifying the accuracy of the company’s financial records to safeguard investors against accounting fraud.
Step-by-step explanation:
According to the Sarbanes-Oxley Act (SOX), introduced in the wake of major accounting scandals such as those involving Enron and WorldCom, external auditors are hired by and required to report to the company's board of directors.
The board of directors is elected by the shareholders and serves as the first line of corporate governance and oversight for the company's executives.
The role of the external auditors is critical as they review the company’s financial records and certify their accuracy to increase confidence and protect investors from accounting fraud.