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1. Which of the following statements is true about the
Sarbanes-Oxley Act of 2002 (SOX)?
a) It applies only to publicly traded companies in the US.
b) It requires auditors to report directly to the audit
committee of the board of directors.
c) It prohibits auditors from providing any non-audit
services to their audit clients.
d) It establishes the Public Company Accounting Oversight
Board (PCAOB) to oversee the auditing profession.
*Answer: d) It establishes the PCAOB to oversee the
auditing profession.*
Rationale: SOX was enacted in response to a series of
accounting scandals that undermined public confidence in
the reliability of financial reporting. SOX aims to enhance
the quality and independence of audits, improve corporate
governance and accountability, and protect investors from
fraud and misconduct. SOX applies to all companies that
file reports with the Securities and Exchange Commission
(SEC), not just publicly traded ones. SOX requires auditors
to report directly to the audit committee, but does not
prohibit them from providing certain non-audit services, as
long as they are pre-approved by the audit committee and
disclosed in the financial statements. SOX establishes the
PCAOB as a nonprofit corporation that has the authority to
set auditing standards, inspect audit firms, conduct
investigations and disciplinary actions, and impose
sanctions on auditors.
2. Which of the following is an example of a tax avoidanceÂ
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