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Essay on roles and responsibilities of the audit committee
Safeguards in place for the sarbanes oxley act
Safeguards in place for the sarbanes oxley act
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Sarbanes-Oxley Act (SOX)
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Introduction
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.
Audit Committee of Public Company Boards of Directors
According to section 301 of the Sarbanes-Oxley act, all the members of the audit committee will be members of the board of directors of the public company and be required to be otherwise independent (AICPA, 2004). In addition to this, Keinath and Walo (2004) state that one member of this committee will need to be an expert in the field of financial management. These requirements are likely to introduce changes in the composition of the audit committees of some public companies. According to a survey conducted by Keinath and Walo, 10% of companies did not have at least one member with expertise in financial management in their audit committees meaning they would have to alter the composition in order to ensure compliance to the Act. In addition to this, some companies made exceptions when it came to ensuring that members of the audit committees were independent (Keinath a...
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...Retrieved November 9, 2013 http://www.bizjournals.com/kansascity/stories/2007/05/07/focus3.html?page=all
Keinath, A.K. Walo J.C.(2004) Audit Committee Responsibilities. The CPA Journal, November 2004 Issue. New York: The New York State Society of CPAs.
Livingstone, L. (2011) Ethics Made Easy. North Charleston: CreateSpace
Summary of the Provisions of the Sarbanes-Oxley Act of 2002 (2004) AICPA. Retrieved November 9, 2013 http://www.aicpa.org/InterestAreas/ForensicAndValuation/Resources/FraudPreventionDetectionResponse/Pages/Summary%20of%20the%20Provisions%20of%20the%20Sarbanes-Oxley%20Act%20of%202002.aspx
The Sarbanes-Oxley Act at 10: Enhancing the reliability of financial reporting and audit quality (2012). Ernst & Young. Retrieved November 9, 2013 http://www.ey.com/publication/vwluassetsdld/soxat10_jj0003_july2012/$file/soxat10_jj0003_july2012.pdf?OpenElement
The specific obligations in this case would include monitor corporate governance activities and compliance with organization policies, and assess audit committee effectiveness and compliance with regulations
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.
Sarbanes-Oxley Act and Dodd-Frank Act are some of the most important regulations in the modern financial environment. The significance of these regulations is attributed to their focus on promoting the vitality of financial markets through addressing complexities in financial procedures and preventing financial wrongdoing. The enactment of these regulations was fueled by some financial irregularities in the corporate world and some major players in the financial markets. Despite the strong link between these laws and the financial markets, they have some similarities and differences in light of their respective objectives.
In July of 2002, Congress swiftly passed the Public Company Accounting Reform and Investors Protection Act at the time when corporations like Arthur Anderson, Enron and WorldCom fell due to fraudulent accounting practices and bad internal control. This bill, sponsored by Mike Oxley (R-OH) and Paul Sarbanes (D-MD), became known as Sarbanes-Oxley Act (SOX).It sought to restore public confidence in publicly traded companies and their accounting practices, though the companies listed above were prosecuted on laws that were already in place before SOX. Many studies have examined the effects of SOX on corporations in the past eleven years. The benefits are hard to quantify and the cost are rather hard to estimate including the effect on market efficiency.
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.
Individual Article Review Lily Cobian LAW/421 March 31, 2014 Ramon E. Ortiz-Velez Individual Article Review Introduction My article review is based on Sarbanes-Oxley and audit failure, a critical examination why the Sarbanes-Oxley Act of 2002 was established and why it is not a guarantee to prevent failure of audits. Sarbanes-Oxley Act talks about scandals of Enron which occurred in 2001 and even more appalling the company’s auditor, Arthur Anderson, found guilty of shredding company documents after finding out Enron Company was going to be audited. The exorbitant amounts of money auditors get paid to hide audit discrepancies was also beyond belief. The article went on to explain many companies hire relatives or friends to do their audits, resulting in fraud, money embezzlement, corruption and even the demise of companies. Resulting in the public losing faith in the accounting profession, the Sarbanes-Oxley Act passed in 2002 by congress was designed to restrict what company owners and auditors can and cannot do. From what I gathered in the article, ever since the implementation of the Sarbanes- Oxley Act there has been somewhat of an improvement but questions are still being asked as to why there are still issues that are not being targeted in hopes of preventing more audit failures. The article also talked about four common causes of audit failure: unintentional auditor mistakes, fraud, fatigue and auditor client relationships. The American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct clearly states an independent auditor because it produces a credible audit, however, when there is conflict of interest, the relation of a former employer, or a relative or even the fear of getting fire...
Rittenberg, Larry, Bradley Schwieger, and Karla Johnstone. Auditing. 6th ed. Mason: Thomas South-Western, 2005. 10-40.
The audit committee a part of the board of directors plays an important role in preventing fraud. They are directly responsible for overseeing the work of any public accounting firm, such as PwC, employed by the company. They also must preapprove all audit services provided by the auditors.
HCA’s Audit and Compliance Committee is responsible for assisting the Board of Directors in making decisions with integrity (“Charter,” 2015). The Audit and Compliance Committee is responsible for ensuring that the Board has all information regarding laws and regulations
Sarbanes-Oxley Act of 2002 (SOX), Pub. L. No. 107-204, 116 Stat. 745 (codified as amended in scattered sections of 15 U.S.C.)
The collapse of the insurance giant HIH in Australia has led to considerable changes in financial report auditing. Many of these changes focus on the presence and extent of the auditor independence. A major issue with the Auditor independence is the threats to independence are usually restrained and difficult to measure. One of the reasons that lead most corporates to failure is bad management. As the board of directors, they were the people who made the final decision.
Corporate governance changed drastically after the case of Andersen Auditors, Enron’s auditing service showed that they contributed to the scandal. Andersen was originally founded in 1913, and by taking tough stands against clients, quickly gained a national reputation as a reliable keeper of the people’s trust (Beasley, 2003). Andersen provided auditing statements with a ‘clean’ approval stamp from 1997 to 2001, but was found guilty of obstructing justice by shredding evidence relating to the Enron scandal on the 15th June 2002. It agrees to cease auditing public companies by 31 August (BBC News, 2002).
Organizations that only have top management as the board members are more susceptible to accounting malpractices. Members of the board should preferably own shares in the company to ensure diligence when it comes to the interests of the company. Apart from the Board of Governors, there should also be an audit committee in place to oversee the financial dealings of the bank. Members of the board and the audit committee should have basic financial knowledge. Some of the members should also be experts in finances so that they can detect any anomaly that may take place in terms of financial reporting. An overhaul of the regulatory framework is required to empower authorities to intervene immediately, and make improvements. New technology is required. Manual antiquated processes should be eliminated because this causes greater human error and poor
Conflict of interest is a big problem between Enron and its auditing firms. It is believes that Enron’s auditors was hide many information and external auditors never aware or hide the losses in Enron. From audit committees to transparency committees would increase the likelihood that a firm’s key business ricks are transparent to investors (Healy & Palepu 2003, p. 21). Besides, a transparency committee can also help with internal auditor appreciate its primary responsibility lies with the board, not for personal interest and pleasing the leader.
The oversight responsibilities of the board, the CAE lacking of expertise or broad understanding of financial controls and responsibilities, and the understaffed internal audit functions lacking of independence and direct access to the board of directors contributed to the absence of internal controls. To begin with, the board should be retrained to achieve financial literacy to review financial reporting. Other than attending formal meetings, the board of directors should be more involved with the management. For the Audit Committee, the two members who were recruited as acquaintances to Brennahan need be replaced with experts who are more sufficiently knowledgeable about accounting rules beyond merely “financially literate”. Furthermore, the internal audit functions need to expand with different expertise commensurate with the expanded activities of the organization, testing financial reporting rather than internal controls from an operational perspective. The CAE should be more independent and proactive to execute audit plans, instead of following orders from the CFO, and initiate a direct and efficient communication between internal audit and audit