Certification in Supplier Diversity Practice Exam

The requirement to disclose the business purpose of off-balance-sheet arrangements falls under which section of SOX?

1. Section 401a

2. Section 404

3. Section 409

4. Section 405

The correct answer is: Section 401a

The requirement to disclose the business purpose of off-balance-sheet arrangements is indeed addressed in Section 401(a) of the Sarbanes-Oxley Act (SOX). This section mandates that companies must provide transparency regarding off-balance-sheet arrangements, which can significantly impact a company’s financial condition and operations. It helps ensure that financial statements provide a clearer picture of a company's financial performance by requiring explicit disclosure of the nature and business purpose of these arrangements. This focus on transparency is crucial in maintaining investor confidence and preventing deceptive financial reporting practices that could mislead stakeholders regarding a company's financial health. By requiring such disclosures, Section 401(a) aims to foster a more honest and reliable financial reporting environment. Other sections of SOX focus on different aspects of corporate governance and reporting, such as internal controls and financial disclosures, but they do not specifically address the disclosure requirements for off-balance-sheet arrangements in the same manner as Section 401(a). Thus, this understanding highlights the key role of Section 401(a) in promoting clarity and accountability in financial reporting.