Final answer:
True, Section 404 of the Sarbanes-Oxley Act mandates that public companies have an external auditor affirm their internal control over financial reporting. This section was established to protect investors and re-establish confidence in corporate financial statements after a series of high-profile accounting scandals.
Step-by-step explanation:
True, Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest to and report on the adequacy of their internal control over financial reporting.
This requirement was among the measures taken by the government to increase confidence in the financial information that public corporations provide, especially after the confidence-shaking accounting scandals involving Enron, Tyco International, and WorldCom that occurred in the early 2000s.
The act serves as a protection mechanism for investors and helps ensure accurate financial information is disclosed.
Beyond Section 404, the Sarbanes-Oxley Act also bolsters corporate governance by holding the board of directors, auditing firms, and outside investors accountable. These mechanisms serve to prevent accounting fraud and to re-establish trust with investors.
The act became a pivotal part of regulatory requirements for public companies following notable failures in corporate governance, such as the collapse of Lehman Brothers, where investors were misled about the firm's operations.
The statement is True.