Question

What are Sarbanes-Oxley Act major implications to the audit and accounting profession?

Answer 1

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The implications of the Act for accountants of Sarbnes Oxley Act are summarized below:-

1.     Board Composition.Two of the five Board members must be or must have been CPAs. The remaining three must not be and cannot have been CPAs. The Chair may be held by one of the CPA members, but he or she must not have practiced accounting during the five years preceding his/her appointment.

2.     Funding. The Board will be funded by public companies through mandatory fees. Accounting firms that audit public companies must register with the Board ("registered firm"), and pay registration and annual fees.

3.     Standard Setting. The Board will issue standards or adopt standards set by other groups or organizations, for audit firm quality controls for the audits of public companies. These standards include: auditing and related attestation, quality control, ethics, independence and "other standards necessary to protect the public interest." The Board has the authority to set and enforce audit and quality control standards for public company audits.

4.     Investigative and Disciplinary Authority. The Board is empowered to regularly inspect registered accounting firms' operations and will investigate potential violations of securities laws, standards, competency and conduct.

5.     International Authority. Foreign accounting firms that "prepare or furnish" an audit report involving U.S. registrants will be subject to the authority of the Board.

6.     Auditors Report to Audit Committee. Now, auditors will report to and be overseen by a company's audit committee, not management.

7.     Audit Partner Rotation. The lead audit partner and audit review partner must be rotated every five years on public company engagements.

8.     Consulting Services. The Act lists eight types of services that are "unlawful" if provided to a publicly held company by its auditor: bookkeeping, information systems design and implementation, appraisals or valuation services, actuarial services, internal audits, management and human resources services, broker/dealer and investment banking services, and legal or expert services related to audit services.

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