Question

1. Loans to executives were prohibited by the Sarbanes-Oxley Act of 2002 because:
(a) The board of directors granted huge loans to company officers, and then conveniently authorized “forgiveness” of the loan, which inevitably led to the company’s bankruptcy in due course.
(b) The huge loan is treated as a related- party transaction in the statement of financial position.
(c) The huge loan is not given based on the grade of the employee where the higher the position of the employee in the company, the bigger the amount of the loan.
(d) The huge loan is treated as a short- term loan due in one year within the statement of financial position.

Answer 1

Loans to executives were prohibited by the Sarbanes-Oxley Act of 2002 because:

ans-(a) The board of directors granted huge loans to company officers, and then conveniently authorized “forgiveness” of the loan, which inevitably led to the company’s bankruptcy in due course.

explanation

Section 402 of the Sarbanes-Oxley Act of 2002 was enacted to prohibit publicly- traded companies from providing personal loans to directors and executive officers. Among the reasons identified were concerns over the use of company funds to provide personal financing to insiders.