Question

In: Accounting

In order to preserve auditor independence, the Sarbanes–Oxley Act of 2002 restricts the types of nonaudit...

In order to preserve auditor independence, the Sarbanes–Oxley Act of 2002 restricts the types of nonaudit services that auditors can perform for their public‐company audit clients. The list includes nine types of services that are prohibited because they are deemed to impair an auditor's independence. Included in the list are the following: Financial information systems design and implementation Internal audit outsourcing Describe how an auditor's independence could be impaired if she performed IT design and implementation functions for her audit client. Likewise, how could an auditor's involvement with internal audit outsourcing impair his or her independence with respect to auditing the same company?

Solutions

Expert Solution

Sarbanes–Oxley Act of 2002 restricts the types of nonaudit services that auditors can perform for their public‐company audit clients. The list includes nine types of services that are prohibited because they are deemed to impair an auditor's independence. Included in the list are the following: Financial information systems design and implementation; & Internal audit outsourcing Services.

UNDERSTANDING THE RATIONALE:

An Auditor needs to main her Independence Status throughout the Audit Period. Any other services that may impair her Independence Status is not in conformity with Auditing Principles.

The Auditor should consider whether a service provided by her :

(a) creates a mutual or conflicting interest with their audit client;
(b) places them in the position of auditing their own work;
(c) results in their acting as management or an employee of the audit client; or
(d) places them in a position of being an advocate for the audit client.

Since IT Design and Implementation and Internal Audit Outsourcing leads to one or more of the above mentioned situations, the same is Restricted by SOX Act.


Related Solutions

Explain the purpose of Sarbanes Oxley Act of 2002
Explain the purpose of Sarbanes Oxley Act of 2002
Summarize and compare the regulatory efforts of The Sarbanes-Oxley Act of 2002
Summarize and compare the regulatory efforts of The Sarbanes-Oxley Act of 2002
Williams Act of 1968 Sarbanes - Oxley Act of 2002 Why was the regulation brought into...
Williams Act of 1968 Sarbanes - Oxley Act of 2002 Why was the regulation brought into existence? • What were the main provisions of the regulation? • Was the regulation successful? • Provide real-world examples related to this regulation (e.g.: Corporations or Executives found adhering/flouting these regulations)
Describe the Sarbanes-Oxley Act of 2002 and specifically describe the details of the act, how it...
Describe the Sarbanes-Oxley Act of 2002 and specifically describe the details of the act, how it affected companies, who is required to comply with the act and whether or not (in your opinion and why) it has fulfilled its goals.
The Sarbanes Oxley (SOX) Act was passed in 2002 as a result of corporate scandals and...
The Sarbanes Oxley (SOX) Act was passed in 2002 as a result of corporate scandals and in as attempt to regain public trust in accounting and reporting practices. Two random samples of 1015 executives were surveyed and asked their opinion about accounting practices in both 2000 and in 2006. The table below summarizes all 2030 responses to the question, “Which of the following do you consider most critical to establishing ethical and legal accounting and reporting practices?” Did the distribution...
The Sarbanes-Oxley (SOX) Act was enacted in 2002 for companies in the private sector as a...
The Sarbanes-Oxley (SOX) Act was enacted in 2002 for companies in the private sector as a result of the Enron and other scandals. However, it does not apply to government. Should SOX-like provisions be required for the federal government? Has there been any move in this direction? Why or why not?
The Sarbanes Oxley Act was issued in 2002 in response to the many corporate scandals to...
The Sarbanes Oxley Act was issued in 2002 in response to the many corporate scandals to help reduce fraud, improve the reliability of financial reporting and restore public confidence in the accounting profession. Identify a financial reporting fraud that occurred prior to 2002 and discuss how the requirements of SOX could have prevented the fraud from occurring.
Review the provisions of the Sarbanes-Oxley Act of 2002 to address the accounting scandals in the...
Review the provisions of the Sarbanes-Oxley Act of 2002 to address the accounting scandals in the late 1990s and early 2000s (Enron, WorldCom, etc.)BELOW: Identify the provisions that you believe made the most significant impact. What other provisions could have been included in the Act to strengthen the responsible stewardship and integrity of the accounting profession? Conversely, what existing provisions in the Act do you believe (if any) are unnecessary or over-regulate the profession? As a result of corporate accounting...
Review the provisions of the Sarbanes-Oxley Act of 2002 to address the accounting scandals in the...
Review the provisions of the Sarbanes-Oxley Act of 2002 to address the accounting scandals in the late 1990s and early 2000s (Enron, WorldCom, etc.)BELOW: List the existing provisions in the Act do you believe (if any) are unnecessary or over-regulate the profession? As a result of corporate accounting scandals, such as those at Enron and WorldCom, the U.S. Congress enacted the Sarbanes-Oxley Act of 2002 (SOX). The purpose of SOX is to restore trust in publicly traded corporations, their management,...
Discuss the major components of the Sarbanes-Oxley Act of 2002 and Corporate Governance?
Discuss the major components of the Sarbanes-Oxley Act of 2002 and Corporate Governance?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT