Which of the following best describes what the Sarbanes-Oxley Act (SOX) does?

• A. It sets tax rates for corporations and individuals.
• B. It regulates the trading of securities on stock exchanges.
• C. It determines the minimum wage for employees in the financial sector.
• D. It establishes stricter regulations for financial reporting and internal controls for publicly traded companies.

Answer: (D)

Verified step by step guidance

1. Understand the context of the Sarbanes-Oxley Act (SOX): It was enacted in 2002 in response to major corporate scandals (e.g., Enron, WorldCom) to restore public trust in financial reporting and corporate governance.
2. Recognize the primary purpose of SOX: It focuses on improving the accuracy and reliability of corporate disclosures and ensuring stronger internal controls for publicly traded companies.
3. Eliminate incorrect options: SOX does not set tax rates (this is handled by tax legislation), regulate securities trading (this is the role of the SEC), or determine minimum wages (this is labor law).
4. Identify the correct description: SOX establishes stricter regulations for financial reporting and internal controls for publicly traded companies, ensuring transparency and accountability.
5. Conclude that the correct answer is the option describing SOX as establishing stricter regulations for financial reporting and internal controls for publicly traded companies.