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 avoidance