Question

1. Why is Sarbanes - Oxley so important for todays firms?

2. Why is it important to have an external firm perform an audit ?

Answer 1

1) The Sarbanes-Oxley Act of 2002 is a federal law that established sweeping auditing and financial regulations for public companies. The legislation was created by lawmakers  to help protect shareholders, employees and the public from commiting accounting errors and fraudulent financial practices.The legislation plans to both improve the reliability of the public companies' financial reporting as well as to restore investor confidence in the wake of high-profile cases of corporate crime.

2)  Ensures Tax Compliance=

When you order an external audit, you are opening your business up to a critical and bias-free assessment. One of the advantages of having external audit is that firm is not affiliated with your company and can evaluate your business without the fear of repercussions .

Provides Independent Credibility=

Another of the advantages of having an audit from an outside firm is that your financial statements will be more credible if a company with no stake in your success or failure vets them. The importance of independence in auditing is that it provides credibility that is one of the keys to the success of your small business, especially when you’re in the process of building a strong reputation within your industry.

Allows Critique of Your Internal Processes=

External auditors can observe operations with more precision and determine in which areas your business is wasting time and money. External auditors often critique accounting practices and general operations, and develop an action plan for you to reduce waste and implement strategies for greater efficiency.

Allows Quality Control of Internal Audit=

External auditors can look at the same factors as internal auditors and double-check their work. They can ensure that the internal audit was comprehensive, accurate and reflective of your company’s financial status and tax compliance. External auditors typically have expertise in a variety of financial areas that often exceeds the knowledge of your internal auditors. That means external auditors can also train your internal auditors in accounting principles.