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A goal of the Sarbanes-Oxley Act is improving corporations' internal controls. Which of these may accomplish this goal?

a) Loosening financial reporting requirements
b) Enhancing corporate transparency and accountability
c) Reducing the penalties for fraudulent activities
d) Limiting the role of auditors in financial oversight

1 Answer

5 votes

Final answer:

The Sarbanes-Oxley Act, enacted to prevent accounting fraud, aims to enhance corporate transparency and accountability to improve internal controls. Options that undermine financial oversight would not achieve this goal. Effective corporate governance requires the involvement of the board of directors, auditors, and investors.The correct answer is option B.

Step-by-step explanation:

The Sarbanes-Oxley Act of 2002 was enacted in response to a series of major accounting scandals involving corporations such as Enron, Tyco International, and WorldCom.

The goal of the Sarbanes-Oxley Act is to improve corporations' internal controls and enhance financial reporting to protect investors from accounting fraud. Among the options provided, enhancing corporate transparency and accountability is the one that may accomplish this goal.

This includes setting higher standards for corporate governance, mandating rigorous internal control practices, and increasing the responsibilities of corporate officers for the accuracy of financial statements.

Options such as loosening financial reporting requirements, reducing penalties for fraudulent activities, or limiting the role of auditors would be counterproductive to the objectives of the Sarbanes-Oxley Act and therefore would not improve internal controls.

A well-functioning system of corporate governance involves several key players, including the board of directors, the auditing firms, and outside investors. However, these systems can fail if not properly regulated, as was the case with Lehman Brothers.The correct answer is option B.

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