Question

Which of the following acts requires companies to set up confidential systems so that employees and others may "raise red flags" about suspected illegal and unethical auditing and accounting practices?

a) Sarbanes-Oxley Act
b) Dodd-Frank Act
c) Securities Act of 1933
d) Racketeer Influenced and Corrupt Organizations (RICO) Act

Answer 1

The Sarbanes-Oxley Act of 2002 requires companies to establish confidential systems for reporting unethical auditing and accounting practices, in order to protect investors and increase confidence in financial information.

Step-by-step explanation:

The act that requires companies to set up confidential systems so that employees and others may "raise red flags" about suspected illegal and unethical auditing and accounting practices is the Sarbanes-Oxley Act. A number of major accounting scandals, including those at Enron, Tyco International, and WorldCom, led to its enactment in 2002.

This legislation was specifically designed to increase confidence in the financial information that public corporations provide, thereby protecting investors from the consequences of accounting fraud.