Question

The scandals of 2000-2002 centered largely on three broad practices. The Sarbanes-Oxley Act was passed by Congress in 2002 in response to these problems. Which of the following does NOT describe one of the practices that this act was to address?

- Tainted securities research and recommendations put out to the public
- Board of directors must be composed with at least two members of the companies management team
- Allocations of shares in initial public offerings
- Misleading financial statements and accounting practices

Answer 1

The Sarbanes-Oxley Act was passed to address tainted securities research, allocations of shares in IPOs, and misleading financial statements, but not the requirement for board of directors to include members of the management team.

Step-by-step explanation:

One of the practices that the Sarbanes-Oxley Act was NOT designed to address is the requirement for board of directors to be composed with at least two members of the company's management team.

The Sarbanes-Oxley Act was enacted to address the following practices:

1. Tainted securities research and recommendations put out to the public
2. Allocations of shares in initial public offerings
3. Misleading financial statements and accounting practices

These practices were identified as contributing factors to the major accounting scandals that occurred in the early 2000s.