The Sarbanes-Oxley Act requires companies to set up confidential systems so that employees and others can "raise red flags" about suspected illegal or unethical auditing and accounting practices.

Question

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This is a requirement of the Sarbanes-Oxley Act, which was passed in 2002 after accounting scandals such as Enron and WorldCom exposed serious flaws in corporate financial reporting and auditing practices. The law aims to improve transparency and accountability in business practices, and establishing confidential reporting systems is one way to encourage whistleblowers to come forward with concerns about fraud, embezzlement, or other illegal or unethical behavior.

The Sarbanes-Oxley Act Requires Companies to Set Up Confidential Systems