Fundamentals of Business Intelligence (FBI) Practice Exam

Which statement about the Sarbanes-Oxley Act is inaccurate?

1. It led to increased transparency in financial reporting.

2. It introduced stricter regulations for public companies.

3. It led to the creation of GAAP.

4. It aims to prevent accounting fraud.

The correct answer is: It led to the creation of GAAP.

The statement regarding the Sarbanes-Oxley Act that is inaccurate is the one that claims it led to the creation of GAAP (Generally Accepted Accounting Principles). The Sarbanes-Oxley Act, enacted in 2002, was primarily designed to enhance corporate governance and accountability, with a particular focus on improving the accuracy and reliability of corporate disclosures and financial reporting to prevent fraud. GAAP, on the other hand, has been in existence long before the Sarbanes-Oxley Act was introduced. GAAP refers to a set of accounting principles, standards, and procedures that companies are required to follow when they compile their financial statements. These standards are established by the Financial Accounting Standards Board (FASB), and the Sarbanes-Oxley Act itself does not create or define these principles. The other statements highlight the Act's true contributions: it indeed led to increased transparency in financial reporting and introduced stricter regulations for public companies, as well as aimed to prevent accounting fraud, all of which are aligned with the goals of the legislation. Therefore, stating that the Sarbanes-Oxley Act created GAAP misrepresents the historical context and the purpose of the Act.