Question

Pretend it is early 2002 and you are Senator Paul Sarbanes.  What would you do differently when writing the Sarbanes-Oxley Act? (Do not say you think it is perfect and you would not do anything differently. Discuss at least two things you would do differently.please explain in detail.

Answer 1

The two main things which I would have done is:

• Title VII of the Act states that no person on the audit committee will be allowed to receive consulting fees, it does not specify the separation of the divisions within a public accounting firm. What this means is that the persons on the audit committee can still provide consulting services and simply charge the consulting as increased audit fees. By separating the divisions, the company will be forced to show the revenues as separate, which will ensure that the services are being provided by two different groups of people. Although this method will not provide the assurance of complete independence, it is definitely a step in the right direction.
• The additions that need to be made to Title V involve the duties and responsibilities of the Board. First, this Board could potentially be a system of fraud prevention in addition to its investigative duties. Along with allowing the Board to conduct investigations upon the surfacing of fraudulent activity, they should also be given the authority to conduct random investigations into any corporation at any time. If a company knows that their activity has become suspect, then they will have time to cover up a lot of the evidence leading to the persons behind the misleading activity. However, the allowance of random investigations could provide the fear factor that stops a lot of fraud before it begins. If a company knows that it could be investigated at any given time, then it might be less likely to try to get away with "cooking the books."