ACCA Strategic Business Leader (SBL) Practice Exam

What must the annual report of stock market companies include according to Sarbanes-Oxley?

1. A statement on internal control

2. A financial summary of the year

3. A list of all shareholders

4. A summary of major lawsuits

The correct answer is: A statement on internal control

The annual report of stock market companies must include a statement on internal control as mandated by the Sarbanes-Oxley Act. This legislation was enacted to enhance corporate governance and accountability following various financial scandals. The requirement for a statement on internal control is crucial; it entails the management's responsibility to establish and maintain adequate internal controls over financial reporting. This statement ensures that companies assess and disclose the effectiveness of their internal control systems, which is vital for preventing fraud and ensuring the accuracy of financial statements. By requiring this disclosure, Sarbanes-Oxley aims to enhance transparency and protect investors by ensuring that companies are operating with proper oversight and integrity. In contrast to this, while a financial summary of the year is certainly important and often included in annual reports, it is not specifically mandated by Sarbanes-Oxley. Similarly, a list of all shareholders is not a requirement of the act, as this information is generally available from other sources and is less about internal control. A summary of major lawsuits may be relevant for investors but is not stipulated as a required component of an annual report under Sarbanes-Oxley. Therefore, the inclusion of a statement on internal control is the distinctive requirement that aligns with the objectives of promoting accountability and transparency