Sarbanes-Oxley Act (2002) Quiz

What is the Sarbanes-Oxley Act (2002)?

• A legislative response to corporate accounting scandals

• A collection of tools and penalties to punish offenders

• A report on the effectiveness of internal controls

• A requirement for CEOs to sign corporate tax returns

Answer explanation

The Sarbanes-Oxley Act (2002) is a legislative response to corporate accounting scandals, such as Enron and WorldCom. It was enacted to improve corporate governance, enhance financial transparency, and restore investor confidence. The act introduced various reforms, including stricter financial reporting requirements, increased penalties for fraudulent activities, and enhanced internal controls. While it does address penalties and internal controls, its primary purpose is to address corporate accounting scandals.

Which section of the Sarbanes-Oxley Act (2002) covers prominent examples of corporate wrongdoing?

• Public Company Accounting Oversight Board (P C A O B)

• Auditor independence

• Corporate responsibility

• Enhanced financial disclosures

Answer explanation

The Sarbanes-Oxley Act (2002) is a US federal law that aims to protect investors from fraudulent financial reporting by corporations. The section on Corporate Responsibility specifically addresses prominent examples of corporate wrongdoing by holding executives accountable for the accuracy and reliability of their company's financial statements and disclosures. This section helps to ensure transparency and prevent fraudulent activities in the corporate world.

What is the purpose of the Public Company Accounting Oversight Board (P C A O B)?

• To maintain compliance with established standards

• To enforce rules and disciplinary procedures

• To provide enhanced financial disclosures

• To address conflicts of interest

Answer explanation

The purpose of the Public Company Accounting Oversight Board (PCAOB) is to maintain compliance with established standards. It oversees the audits of public companies and other issuers to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports.

Which service is prohibited by the Sarbanes-Oxley Act (2002) as a violation of auditor independence?

• Providing audit services to a company whose senior officers were employed by the accounting firm within the previous 12 months

• Rotating senior auditors off an account every five years

• Reporting all other written communications between management and auditors

• Certifying quarterly and annual reports to the SEC

Answer explanation

The Sarbanes-Oxley Act (2002) aims to protect investors by ensuring auditor independence. It prohibits providing audit services to a company whose senior officers were employed by the accounting firm within the previous 12 months. This rule prevents conflicts of interest and maintains the integrity of the auditing process.

What does Title Three of the Sarbanes-Oxley Act (2002) require?

• Independent audit committees and certification of reports

• Enhanced financial disclosures and off-balance sheet transactions

• Addressing conflicts of interest in securities analysis

• Additional funding and authority for the SEC

Answer explanation

Title Three of the Sarbanes-Oxley Act (2002) requires independent audit committees and certification of reports. This section of the act focuses on ensuring that companies have unbiased and accurate financial reporting, which is essential for maintaining investor confidence and preventing corporate fraud.

Which title of the Sarbanes-Oxley Act (2002) provides additional funding and authority to the SEC?

• Title Four: Enhanced Financial Disclosures

• Title Five: Analyst Conflicts of Interest

• Title Six: Commission Resources and Authority

• Title Seven: Studies and Reports

Answer explanation

The Sarbanes-Oxley Act (2002) is a US federal law that aims to protect investors from fraudulent financial reporting by corporations. Title Six: Commission Resources and Authority provides additional funding and authority to the Securities and Exchange Commission (SEC) to enhance its oversight and enforcement capabilities. This title helps the SEC to better regulate and monitor the financial activities of public companies, ensuring transparency and accuracy in financial reporting.

What does Title Eight of the Sarbanes-Oxley Act (2002) provide?

• Tougher criminal penalties for altering documents and defrauding shareholders

• Protection for employees who provide evidence of fraud

• Certification of periodic reports and penalties for misleading or fraudulent reports

• Additional authority to regulatory bodies and courts to address corporate fraud

Answer explanation

Title Eight of the Sarbanes-Oxley Act (2002) provides protection for employees who provide evidence of fraud. This section of the act is designed to encourage whistleblowers to come forward without fear of retaliation, ensuring that corporate fraud can be detected and addressed more effectively.

What is the purpose of Title Nine of the Sarbanes-Oxley Act (2002)?

• To convey the sense of the Senate regarding CEO signing of corporate tax returns

• To provide additional authority to regulatory bodies and courts

• To treat attempts to commit white-collar crimes as if the crimes were committed

• To address matters involving corporate fraud and retaliation against whistle-blowers

Answer explanation

Title Nine of the Sarbanes-Oxley Act (2002) aims to treat attempts to commit white-collar crimes as if the crimes were actually committed. This provision strengthens the legal framework against corporate fraud by holding individuals accountable for their actions, even if they only attempted to commit a crime, rather than successfully carrying it out.

Which title of the Sarbanes-Oxley Act (2002) requires CEOs to sign a company's federal income tax return?

• Title Ten: Corporate Tax Returns

• Title Eleven: Corporate Fraud and Accountability

• Title Eight: Corporate and Criminal Fraud Accountability

• Title Nine: White-Collar Crime Penalty Enhancements

Answer explanation

The Sarbanes-Oxley Act (2002) is a federal law that aims to protect investors from fraudulent financial reporting by corporations. Title Ten: Corporate Tax Returns specifically requires CEOs to sign a company's federal income tax return, ensuring that they take responsibility for the accuracy of the financial information provided. This provision helps to hold top executives accountable for their company's financial reporting and prevent corporate fraud.

What does Title Eleven of the Sarbanes-Oxley Act (2002) provide?

• Additional authority to regulatory bodies and courts to address corporate fraud

• Tougher criminal penalties for white-collar crimes

• Requirements for CEOs and CFOs to certify periodic reports

• Protection for whistle-blowers and actions against tampering with records

Answer explanation

Title Eleven of the Sarbanes-Oxley Act (2002) provides protection for whistle-blowers and actions against tampering with records. This section of the act aims to safeguard individuals who report corporate misconduct and to prevent the destruction or falsification of evidence in investigations. The other options refer to different aspects of the act but do not specifically address Title Eleven.