Question

In 200 words explain One of the provisions of SOX requires auditing firms not to provide other services, such as IT, consulting, or personnel, to their clients. Do you think this is a reasonable provision of the law? Why?

Answer 1

Section 201 of Sarbanes-Oxley Act of 2002 makes it "unlawful" for the auditor to provide nine non-audit services listed in that section. The Act provides that a registered public accounting firm "may engage in any non-audit service, including tax services, that is not described [in the list of nine specifically prohibited services] for an audit client only if the activity is approved in advance by the audit committee of the issuer" in accordance with the Act.

The nine prohibited services as per Section 201 are as under:

(1) bookkeeping or other services related to the accounting records or financial statements of the audit client;

(2) financial information systems design and implementation;

(3) appraisal or valuation services, fairness opinions, or contribution-in-kind reports;

(4) actuarial services;

(5) internal audit outsourcing services;

(6) management functions or human resources;

(7) broker or dealer, investment adviser, or investment banking services;

(8) legal services and expert services unrelated to the audit; and

(9) any other service that the Board determines, by regulation, is impermissible.

In my opinion, the said provision of law is justified and reasonable as the absence of such a prohibition could impact independence of the registered public accounting firm conducting under Sarbanes-Oxley Act of 2002.