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.

Answer: 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.

A. substantially increases the penalties for corporate wrongdoing.

Explanation:

The Sarbanes-Oxley Act of 2002 is a federal law that instituted thorough auditing and financial regulations for public companies. This legislation was created by Lawmakers to protect investors, employees as well as the public from fraudulent financial practices and accounting mishaps. It was passed as a result of the accounting scandals of major corporations including Enron and WorldCom, which resulted in losses running into billions of dollars by investors. These massive losses negatively affected the financial markets and put investors on high alert

The law reduces the freedom of corporations by the government, hence, option B is wrong

The law was passed to curb fraudulent practises not to adopt the theory of allocational efficiency, hence, option C is wrong

The law discourages executives to inflate reports of corporate profits, hence, option D is wrong

The law substantially increases the penalties for corporate wrongdoing, hence, option A is right