ACC 403- AUDITING
August 19, 2012
The Sarbanes-Oxley Act was placed into effect July 2002; the act introduced major changes to the regulation of corporate governance and financial practice. The Sarbanes-Oxley Act was named after Senator Paul Sarbanes and Representative Michael Oxley, who were the main architects that set a number of non-negotiable deadlines for compliance. The organization for Economic Cooperation and Development was one of the first non- government organizations to spell out the principles that should govern the corporate and issued the OECD Principles of Corporate Governance. The Sarbanes Oxley Act also known as Public Company Accounting Reform and Information Protection Act and Corporate and Auditing Accountability and Responsibility Act. It is a federal law that set various principles for all the U.S. companies to detect and evade fraud. It detects the scandals in the securities markets when the share prices of securities are affected.
The act requires the Securities and Exchange Commission to implement rulings on requirements to comply with the law. It created a new agency called Public Company Accounting Oversight Board which regulates, oversees and inspects the role of auditors of public companies. The act covers auditor’s independence, corporate governance, internal control assessment and financial disclosures. The Sarbanes–Oxley contains 11 titles that describe specific mandates and requirements for financial reporting. Each title consists of several sections, which are the following below: I. Public Company Accounting Oversight Board (PCAOB): provides independent oversight of public accounting firms providing audit services and creates a central oversight board tasked with registering auditors. II. Auditors Independence: establishes standards for external auditor independence to limit conflicts of interest and states new auditor approval requirements, audit partner rotation, and auditor reporting requirements. III. Corporate Responsibility: mandates that senior executives take individual responsibility for the accuracy and completeness of corporate financial reports. It defines the interaction of external auditors and corporate audit committees, and specifies the responsibility of corporate officers for the accuracy and validity of corporate financial reports. IV. Enhanced Financial Disclosure: describes enhanced reporting requirements for financial transactions, including off-balance-sheet transactions, pro-forma figures and stock transactions of corporate officers. It requires internal controls for assuring the accuracy of financial reports and disclosures, and mandates both audits and reports on those controls. V. Analyst Conflict of Interest: includes measures designed to help restore investor confidence in the reporting of securities analysts. It defines the codes of conduct for securities analysts and requires disclosure of knowable conflicts of interest. VI. Commission Resources and Authority: defines practices to restore investor confidence in securities analysts, and defines the SEC’s authority to censure or bar securities professionals from practice and defines conditions under which a person can be barred from practicing as a broker, advisor, or dealer. VII. Studies and Reports: requires the Comptroller General and the SEC to perform various studies and report their findings. Studies and reports include the effects of consolidation of public accounting firms, the role of credit rating agencies in the operation of securities markets, securities violations and enforcement actions. VIII. Corporate and Criminal Fraud Responsibility: It describes specific criminal penalties for manipulation, destruction or alteration of financial records or other interference with investigations, while providing certain protections for whistle-blowers. IX. White Collar Crime Penalty Enhancement: It recommends stronger sentencing guidelines...
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