The Sarbanes-Oxley Act: A. substantially increases the penalties for corporate wrongdoing. B. gives corporations greater freedom from government control. C. adopts the theory of allocational efficiency. D. motivates executives to inflate reports of corporate profits.

The Sarbanes-Oxley Act increases the penalties for corporate wrongdoing. (A)

Explanation:

The Sarbanes-Oxley Act was passed to reduce corporate fraud. The Act led to the creation of the Public Company Accounting Oversight Board which was in charge of overseeing the accounting industry. Protection was given to whistleblowers and giving company loans to executives was banned. Chief executive officers were also held responsible for errors made in accounting audits.

The Sarbanes-Oxley Act was as a result of financial scandals involving publicly traded firms such as WorldCom, Tyco International Plc and Enron Corporation in 2000. The frauds in the companies affected the confidence of investors which eventually led to the Act.

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