Question

All of the following are reasons why SOX was enacted, except:

a) Enron's CEO, Jeffrey Skilling, claimed he did not know about the company's financial shenanigans because he was not involved in their accounting
b) Public perception was that auditors were having conflicts of interest with respect to the auditing and consulting services they provided
c) The FASB has long been thought to be ineffective
d) Congress wanted to restore investor confidence in the wake of a rash of corporate scandals

Answer 1

Option (b), The Sarbanes-Oxley Act was enacted to protect investors and restore confidence in public corporate financial information, due to conflicts of interest and corporate scandals, but not due to the ineffectiveness of the FASB.

Step-by-step explanation:

The question asks about the reasons why the Sarbanes-Oxley Act (SOX) was enacted, except for one incorrect option. The Sarbanes-Oxley Act was enacted in 2002 in response to major accounting scandals involving corporations such as Enron, Tyco International, and WorldCom.

It aimed to increase confidence in the financial information provided by public corporations and to protect investors from accounting fraud. The reasons for the enactment of SOX include auditors having conflicts of interest between auditing and consulting services, a desire by Congress to restore investor confidence following various corporate scandals, and the claim by Enron's CEO, Jeffrey Skilling, that he was unaware of the company's financial wrongdoings.

However, the claim that SOX was enacted because 'The FASB has long been thought to be ineffective' is not a reason for the creation of SOX, as the FASB, or Financial Accounting Standards Board, is an organization that sets accounting standards and has not been directly cited as a reason for SOX's enactment.