Final answer:
Companies issuing publicly traded stock are required by the Securities and Exchange Commission (SEC) to have their financial statements audited by an outside auditor, a mandate rooted in legislation aimed at protecting investors.
Step-by-step explanation:
The entity that requires companies issuing publicly traded stock to have their financial statements audited by an outside auditor is the Securities and Exchange Commission (SEC). The establishment of the SEC was a direct result of the Federal Securities Act, which set legal standards for disclosure of information relevant to publicly traded securities. This move, together with the enforcement powers granted to the SEC, helps ensure that investors are provided with accurate financial information.
Furthermore, in response to accounting scandals, the Sarbanes-Oxley Act of 2002 was introduced to bolster public confidence in the financial information reported by public companies and to protect investors from accounting frauds. While the Sarbanes-Oxley Act also created the Public Company Accounting Oversight Board (PCAOB), the requirement for audits is imposed by the SEC.
The PCAOB's role is to oversee the audits of public companies to ensure that they are accurate and reliable, ultimately protecting investors from accounting fraud.