Final answer:
The Sarbanes-Oxley Act and the PCAOB play a critical role in enhancing corporate governance and financial reporting standards to protect investors from accounting fraud.
Step-by-step explanation:
The role of the Sarbanes-Oxley Act and the Public Company Accounting Oversight Board (PCAOB) is to enhance corporate governance and financial reporting standards. The Sarbanes-Oxley Act was enacted in response to major accounting scandals involving corporations like Enron, Tyco International, and WorldCom, which shook investor confidence. This legislation established strict regulations to prevent accounting fraud and protect investors by ensuring that public companies provide accurate and reliable financial information.
The PCAOB, created as a part of the Sarbanes-Oxley Act, oversees the audits of public companies to promote the preparation of informative, fair, and independent audit reports. Corporate governance is the collection of mechanisms, processes, and relations by which corporations are controlled and directed, and it includes the board of directors, auditing firms, and outside investors. As seen in past corporate failures such as Lehman Brothers, ineffective corporate governance can lead to significant problems for both the company and its investors.