Bachelor of General Studies (BGS) Degree Practice Exam

What is the legal requirement for the financial records of publicly held companies?

1. They must be reviewed by internal auditors

2. They must be audited by certified professional accountants

3. They may be self-reported by management

4. They must be verified by shareholder votes

The correct answer is: They must be audited by certified professional accountants

Publicly held companies are required to have their financial records audited by certified professional accountants to ensure accuracy and compliance with applicable financial reporting standards. This audit process serves as an important mechanism for maintaining transparency and trust for investors, regulators, and the public at large. The involvement of certified professional accountants adds credibility to the financial statements since these professionals are trained to assess financial records critically and are bound by ethical standards to report their findings honestly. This requirement is designed to protect stakeholders by providing assurance that the financial statements are free from material misstatements, whether due to fraud or error. Regular audits thus play a vital role in enhancing investor confidence and ensuring that publicly traded entities operate with a high level of financial integrity. Other choices, such as reliance on internal audits, self-reporting by management, or shareholder verification, do not fulfill the regulatory requirements established for publicly held companies, which prioritize rigorous external audits to ensure comprehensive oversight.