Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is the name of the United States act that deals with Corporate Governance?

1. The Dodd-Frank Act

2. The Sarbanes Oxley Act

3. The Securities Act

4. The Federal Trade Commission Act

The correct answer is: The Sarbanes Oxley Act

The Sarbanes-Oxley Act is the comprehensive piece of legislation enacted in response to multiple corporate scandals that became prominent in the early 2000s, such as Enron and WorldCom. The main aim of the Act is to enhance corporate governance and accountability, establish accurate financial reporting, and protect investors by improving the accuracy and reliability of corporate disclosures. This legislation introduced strict reforms to enhance transparency in financial statements, including the requirement for top management to personally certify the accuracy of financial information, along with severe penalties for fraudulent financial activity. The Dodd-Frank Act, while also significant, primarily focuses on financial regulatory reform in the aftermath of the 2008 financial crisis rather than specifically targeting corporate governance. The Securities Act is primarily concerned with the securities market and regulating the issuance of stocks and bonds, rather than governance issues. The Federal Trade Commission Act deals with antitrust laws and consumer protection rather than corporate governance matters. Thus, the Sarbanes-Oxley Act stands out as the key legislation specifically addressing corporate governance in the United States.