What does Sarbanes-Oxley require from businesses regarding their financial processes?

Sarbanes-Oxley, officially known as the Sarbanes-Oxley Act of 2002, was enacted in response to major corporate and accounting scandals, notably involving Enron and WorldCom. One of its key provisions emphasizes the importance of establishing and maintaining robust internal controls over financial reporting.

The correct answer, which focuses on detailed internal control assessments, aligns with Section 404 of the Sarbanes-Oxley Act. This section mandates that publicly traded companies not only establish internal controls but also assess the effectiveness of these controls annually. Firms must provide a report on the internal control processes, confirming their accuracy and reliability in financial reporting. This requirement aims to enhance the accuracy of financial disclosures and build investor confidence while deterring fraudulent financial practices.

While regular audits by external firms are also part of the oversight framework set by Sarbanes-Oxley, the primary requirement laid out in the act is centered around internal control assessments. The act does not specifically mandate performance bonuses linked to stock performance or require companies to publicly share executive compensation data in the manner implied, as these do not directly relate to enhancing the integrity of financial reporting processes.