Final answer:
Public corporations must comply with audits to ensure financial accuracy, uphold corporate governance, and protect investors. Regulations like the Sarbanes-Oxley Act emphasize the necessity of audits to prevent fraud and maintain market integrity.
Step-by-step explanation:
It is critical for public corporations to comply with audits to maintain corporate governance, ensure financial transparency, and protect investor interests. Audits serve as a key mechanism in verifying the accuracy of a company's financial records and performance.
The board of directors, as the initial line of governance, alongside auditing firms, and outside investors including those in mutual funds and pension funds, play pivotal roles in overseeing a company's operations.
When a company like Lehman Brothers fails to provide accurate financial information, it erodes investor trust and can lead to significant financial consequences.
This is why regulations such as the Sarbanes-Oxley Act were enacted, to bolster the reliance on the financial information released by corporations and to prevent accounting fraud, ultimately guarding the interests of investors and the integrity of financial markets.
Therefore, audit compliance is not just a legal obligation but also a cornerstone of corporate integrity and investor protection.