An auditor’s role in an audit is very important. An auditor must be able to collect enough evidence to supports their finding, and also be on the lookout for fraud. Company’s may or may not know the law, but it is the job to know the law, and be able to educate and report findings properly. Since the Sarbanes-Oxley Act, there have been provisions that have directly affected auditors. This paper will include the details of the Sarbanes-Oxley Act, how ethics and independence have affected auditors, as well implementation of new standards based on the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act of 2002, provided changes in the regulations of the issuers in the public structures in the United States, as well as non-United States issuers. The Act applies to all issuers including forging private issuers that have registered securities under the United States Securities Exchange Act of 1934, and are required to file reports under section 15(d), or have filed a registration statement under the United States Securities Act of 1933. The Sarbanes-Oxley Act prohibits the listing of any security in the United States of America of an issue that is not in compliance with certain standards for audit committees. The SEC has issues rules requiring a foreign private issuer to disclose their annual report on Form 20-F, ad that the issuer’s board of directors has determined if they have an audit committee financial expert on their auditing committee. They also must disclose the financial expert, and the expert must meet all the attributes. The Act also has requirements that relates directly to auditor independence which will be discussed later. It also states that the auditor cannot be improperly influenced by any officer or director of a company....
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...and Influence in Codes of Ethics: A Centering Resonance Analysis Comparing Pre and Post Sarbanes-Oxley Codes of Ethics. Journal of Business Ethics 80:263-278.
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Internal controls are in place to protect entities against theft from dishonest workers and outside predators. They are also an accurate series of checks and balances and are in place to find discrepancies.
Dodd-Frank and Sarbanes-Oxley Acts are important legislations in the corporate world because of their link to public and privately held companies. Sarbanes-Oxley Act was enacted to enhance transparency and accountability in publicly traded companies. On the contrary, Dodd-Frank Act was enacted to disentangle the confused web of financial service company valuations. Actually, these valuations are usually hidden by complex and unclear financial instruments. The introduction of Sarbanes-Oxley Act was fueled by recent incidents of accounting frauds by top executives of major corporations such as Enron. In contrast, Dodd-Frank Act was enacted as a response to the tendency by banks, insurance companies, hedge funds, rating agencies, and accounting companies to serve up harmful offer of ruined assets and liabilities brought by systemic non-disclosure (Anand, 2011, p.1). While these regulations have some similarities and differences, they have a strong relationship with the financial markets.
It has been a decade since the Sarbanes-Oxley Act became in effect. Obviously, the SOX Act which aimed at increasing the confidence in the US capital market really has had a profound influence on public companies and public accounting firms. However, after Enron scandal which triggered the issue of SOX Act, public company lawsuits due to fraud still emerged one after another. As such, the efficacy of the 11-year-old Act has continually been questioned by professionals and public. In addition, the controversy about the cost and benefit of Sarbanes-Oxley Act has never stopped.
Consistent accounting and financial frauds in the U.S. alerted the SEC to the imperative need for policy and corporate governance changes. The Sarbanes-Oxley Act in 2002 was enacted to encourage financial disclosures, enhance corporate responsibility, and combat fraudulent behaviour. This Act also helped create the PCAOB, which oversees the auditing practice (Stanwick & Stanwick 2009).
Dey, A. (2010). The Chilling Effect of Sarbanes-Oxley: A Discussion of Sarbanes-Oxley and Corporate Risk-Taking. Journal of Accounting And Economics, 49(1-2), 53-57. doi:http://proxy.ulib.csuohio.edu:2279/10.1016/j.jacceco.2009.06.003
In 2002, Congress passed the Sarbanes-Oxley Act (SOX) to strengthen corporate governance and restore investor confidence. The act’s most important provision, §404, requires management and independent auditors to evaluate annually a firm’s internal financial-reporting controls. In addition, SOX tightens disclosure rules, requires management to certify the firm’s periodic reports, strengthens boards’ independence and financial-literacy requirements, and raises auditor-independence standards.
The Sarbanes-Oxley Act was enacted on July 30, 2002. It was enacted by the 107th United States Congress. It is named after sponsors U.S. Senator Paul Sarbanes and U.S. Representative Michael G. Oxley. It is also known as the ‘Public Company Accounting Reform and Investor Protection Act’ in the Senate and ‘Corporate and Auditing Accountability and Responsibility Act’ in the House. The main purpose of this act was to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws, and for other purposes. This act was enacted as a result to a number of corporate and accounting scandals including those affecting Enron, Tyco internationals, Adelphia, Peregrine Systems, and WorldCom. The Securities Exchange Commission (SEC) adopted many rules in order to implement the Sarbanes-Oxley Act.
The Sarbanes-Oxley Act is a legislation aimed at increasing the accuracy of financial statements that were issued by companies that are publicly held (Livingstone, 2011). The passing of this act was a response to some of the financial malpractices that took place at companies such as WorldCom and Enron. According to Livingstone, making ethical decisions is critical because ethical lapses can lead to severe unforeseen consequences (Livingstone, 2011). This paper will discuss the effects of the Act on the audit committees of public company boards of directors as well as outside independent audit firms. The main advantages and disadvantages of the Act and recommendations of the changes that should be made to the act will also be included.
Ethics continues to be a hot issue in the business world. The focus on business ethics grew after several significant business scandals beginning in the millennium. These scandals prompted the government to pass new accounting regulations to increase the control and accuracy of financial reporting. A prominent piece of legislation is the Sarbanes-Oxley Act of 2002, which applies to publicly traded businesses. The basis of Sarbanes-Oxley is to increase the reliability and accuracy of financial reporting (Noreen). At the time of these scandals, many businesses and individual professions already had ethical and accounting standards in place. Subsequently, more businesses have developed ethical codes of conduct.
Throughout the years, the news covered stories of corporate scandals involving accounting unethical practices. These unethical corporate acts had a tremendous negative impact on these company’s stockholders, investors, employees and the whole U.S. economy. Most of these scandals would have been prevented, if the independent audits of these companies were conducted in an ethical manner. With this in mind, two corporate scandals will be the subjects of further review to understand that an auditor might encounter ethical dilemmas, if independence and objectivity are not part of the audit process.
The Sarbanes-Oxley Act of 2002 was passed by Congress to protect investors from fraudulent accounting records. The passing of the act forced strict regulations upon publicly traded companies to improve the accountability of accounting records for investors as a result of the extreme levels of malpractice that occurred in the late twentieth and early twenty-first centuries. The implementation of the SOX Act changed the way accounting records were checked for injustices. With the act, upper level managers were required to certify financial statements for accuracy (section 302), it required management and auditors to establish internal controls along with reports on the efficiency of the costly controls (section 404), and added required outlines for electronic record keeping (section 802).
The Sarbanes-Oxley Act of 2002, also known as the SOX Act, is created in response to the series of deceptive and outright fraudulent activities of the big business in the 1990s. Sarbanes-Oxley, or SOX, is a federal law that is a complete reform of business practices. The Act points specifically at public accounting firms that take part in audits of corporations and it is passed in response to a number of corporate accounting scandals such as Enron, WorldCom, Global Crossing, Tyco and Arthur Andersen. It sets new standards for the corporate management, corporate boards of directors, and public accounting firms. Almost all the scandals involved accusations of presumed “creative accounting,” or complicated
Sarbanes-Oxley Act was enacted following a prolonged period of corporate scandals involving large public companies from 2000 to 2002, this was to restore investors confidence in markets and close loopholes for public companies to defraud investors. This act has had a profound effect on cooperate governance in the US, it requires public companies to strengthen audit committees, perform internal controls tests, set personal liability of directors and officers for accuracy of financial statements, and strengthen disclosure. The Sarbanes-Oxley
This week’s case study, Enron: Questionable Accounting Practices Bring New Regulation to the United States, reflects the increased government control regarding accounting and financial issues in corporations. This increased control was implemented due to the downward economic spiral occurring in the late 1990s. Although, Enron had successfully concealed their debt for years, they inevitably collapsed under an avalanche of debt and profit misrepresentation (Ferrell, Hirt, & Ferrell, 2009). Flawed principles and disclosures surfaced within accounting practices. Therefore, the government implemented the Sarbanes-Oxley Act. The Sarbanes-Oxley Act provided oversight to corporate financial reporting protocols, ethical employee standards, and financial
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).