Which of the following is a requirement established by the Sarbanes-Oxley Act of 2002?

• A. Private companies must file quarterly reports with the SEC.
• B. All companies must use the cash basis of accounting.
• C. The Act eliminates the need for independent auditors.
• D. Public companies must have their internal control systems audited annually.

Answer: (D)

Verified step by step guidance

1. Understand the Sarbanes-Oxley Act of 2002: This legislation was enacted to improve corporate governance and accountability, primarily for public companies, following major corporate scandals. It focuses on enhancing internal controls, financial reporting, and auditor independence.
2. Identify the key requirement related to internal controls: The Act mandates that public companies must establish and maintain effective internal control systems to ensure accurate financial reporting.
3. Recognize the role of auditors: The Sarbanes-Oxley Act requires that public companies have their internal control systems audited annually by independent auditors. This ensures compliance and reliability in financial reporting.
4. Eliminate incorrect options: Review the provided options and discard those that are not aligned with the Act. For example, private companies are not required to file quarterly reports with the SEC, and the Act does not mandate the use of cash basis accounting or eliminate the need for independent auditors.
5. Select the correct answer: Based on the requirements of the Sarbanes-Oxley Act, the correct answer is that public companies must have their internal control systems audited annually.