Question

Assuming that you are the controller for a publicly traded company, your CFO has asked you to prepare a presentation for the accounting department personnel and the public auditors about the importance of the SOX Act and the requirements and responsibilities that the Act establishes for the auditors in charge of an annual audit. After the presentation, the CFO wants all accounting personnel and public accounting auditors to understand the regulations and guidelines established by the SOX Act and also for you to provide recommendations as to how the Act's principles can be improved to make American corporations more ethically responsible.

Assess the provision of the Sox Act that requires the establishment of the Public Company Accounting Oversight Board (PCAOB) and the measures that public accounting firms are taking to ensure that they maintain their independence in all audit assignments, including the mechanisms they are establishing to ensure that the necessary independence and integrity are prevalent in all aspects of their relationship with their clients.

Answer 1

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

The Sarbanes-Oxley Act of 2002 mandates that audit committees be directly responsible for the oversight of the engagement of the company's independent auditor, and the Securities and Exchange Commission (the Commission) rules are designed to ensure that auditors are independent of their audit clients.

The Public Company Accounting Oversight Board (also known as the PCAOB) is a private-sector, nonprofit corporation created by the Sarbanes-Oxley Act of 2002 to oversee accounting professionals who provide independent audit reports for publicly traded companies. The PCAOB's responsibilities include the following:

• registering public accounting firms;
• establishing auditing, quality control, ethics, independence, and other standards relating to public company audits;
• conducting inspections, investigations, and disciplinary proceedings of registered accounting firms; and
• enforcing compliance with Sarbanes-Oxley

The main objective is to oversee the audits of public companies in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers, including compliance reports filed pursuant to federal securities laws, to promote investor protection.

The five members of the PCAOB Board, including the chairman, are appointed to staggered five-year terms by the Securities and Exchange Commission, after consultation with the chair of the Board of Governors of the Federal Reserve System and the secretary of the Treasury.

The SEC has oversight authority over the PCAOB, including the approval of the Board's rules, standards, and budget.