Question

The requirements of SOX have been with the profession for over a decade since enacted in 2002 and has had an impact on the audit profession.

Discuss the impact the following have had on the profession and bring into your discussion:

a. Sarbanes-Oxley (and PCAOB), and

b. Fraud

Matters to consider including in your discussion:

a. Independence / objectivity,

b. value of internal control and risk assessment,

c. periodic performance of analytical procedures,

d. professional judgement,

e. separation of duties,

f. talking to the client, and

g. anything else you want to add to your discussion.

In your opinion, has SOX been effective?

Answer 1

The Sarbanes-Oxley Act of 2002 (SOX) is an act passed in 2002 to protect investors from the possibility of fraudulent accounting activities by corporations.It created the Public Company Accounting Oversight Board to oversee the accounting industry.Following are the impacts of this have had on the profession -

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.

Audit Reports Must Contain Description of Internal Controls Testing. The new regulatory board will also issue or adopt standards that will require every audit report to attest to the assessment made by management on the company's internal control structures, including a specific notation about any significant defects or material noncompliance found on the basis of such testing.

Each investor should have quarterly access to the information needed to judge a firm’s financial performance, condition, and risks.

PCAOBs stricter auditing standards can increase the overall audit level, their effects on audit quality are more controversial. Conceptually, many have observed that the PCAOBs non-expert model in standards setting and inspection makes it more likely that its auditing standards are distant from auditing practice reality and conict with auditorsexercise of professional judgement.

This section prohibits auditors from providing most non-audit services to their clients.By limiting these services, the audit firms become much more independent of their
clients. As stated earlier, non-audit services by audit firms were becoming a much higher percentage of firm revenue, so firms were building significant interest in their clients, which is a conflict of interest. This section reduces audit firm interest in its clients significantly.

In my opinion SOX is completely effective -

The stated purpose of the Act is "to protect investors by improving the accuracy and reliability of corporate disclosures.". and i think it has done that