Final answer:
CEOs are required to certify their company's financial reports under the Sarbanes-Oxley Act. This certification, alongside corporate governance mechanisms like boards of directors and auditing firms, helps ensure the accuracy of financial information. Cases like Lehman Brothers, however, show that these systems can still fail.
Step-by-step explanation:
Under the Sarbanes-Oxley Act of 2002, put in place after major accounting scandals, CEOs are indeed required to vouch for their firm’s financial statements. This act mandates that chief executive officers (CEOs) and chief financial officers (CFOs) of publicly traded companies certify the accuracy and completeness of their corporate financial reports. The enactment of Sarbanes-Oxley aimed to increase investor confidence and prevent accounting fraud by enhancing the accuracy of publicly disclosed financial information.
In addition to CEO and CFO certification, corporate governance plays a critical role in ensuring the integrity of financial reporting. The board of directors, auditing firms, and outside investors, particularly large institutional shareholders, serve as layers of oversight to protect investors' interests and foster transparent corporate conduct. Nevertheless, there have been cases, such as with Lehman Brothers, where despite these mechanisms, accurate financial information was not provided to investors, indicating a failure in corporate governance.