Question

Submit a thread of at least 400 words on the effects of the Sarbanes-Oxley Act of 2002 on the auditor and the auditing profession. Your thread should be properly cited, using APA formatting, and should include at least two scholarly sources

Answer 1

Effects of the Sarbanes-Oxley Act of 2002 on the auditor and the auditing profession:

The Sarbanes Oxley Act was introduced on July 30th, 2002 by President GeorgeWashington Bush. It is more commonly known as SOX audit or Sarbox. this is considered as the most significant change to SEC in the United States. The bill was enacted as a reaction to a number of major corporate and accounting scandals includingthose of Enron, Tyco international and WorldCom. These scandals, which cost investors billions of dollars when the share price of the affected companies collapsed, shook public confidence in U.S securities markets.

Section 203 of SOX act defines Auditor Independence. 1.) The section is called Audit Partner Rotation. 2. )This section refers for lead audit partner as well as the reviewing audit partner cannot participate in the audit of the same client for more than five consecutive years.

3.) This rule helps strengthen auditor independence for a few reasons. One reason is that the current audit partner becomes more accountable for their actions. This is due to the fact that when partners rotate, the new partner will take a hard look into what the previous audits looked like and what the previous partner did on the audits. If the current partner knows this, they will be much more inclined to proceed through their audits with more caution.

4.) The audit partner’s relationship with the client can also become emotional to the point where professional judgment can become effected.

5.) After enactment of the SOX and changes in professional standards, the primary purpose of this study is to provide a basis for a proper evaluation of auditors’ performance.Due to SOX now required auditors to consider the prospect that a firms would continue in existence as part of every audit engagement. But in the post-SOX period, because of the increased risks associated with auditing and the sustained negative publicity about auditors in the media, auditors are now expected to use even more vigorous processes and more conservative steps in deciding whether to issue going-concern or other qualified opinions than they used previously.

6.) Section 404 internal control audits : The audits of internal control have added an important new dimension to the auditor’s work. The auditor is required to have a more complete understanding of the strengths and weaknesses of the client’s financial reporting systems. Audit committees are also being forced to learn more about those systems in order to assess significant deficiencies that the auditor reports to them

7.) New audit approach. To enhance audit efficiency and effectiveness, auditors have in the past used a variety of methods that will no longer be acceptable for integrated audits of public companies. In some financial statement audits, auditors chose to perform only substantive procedures rather than testing controls, or a mixture of the two. In nonauthoritative guidance the AICPA specifically sanctioned cycle rotation as a way to test controls. This involved testing controls in several of an entity’s transaction cycles while doing a transaction “walk-through” to confirm the absence of control changes in the remaining cycles. Since auditors now must report comprehensively on the effectiveness of management’s internal control over financial reporting on an annual basis, cycle rotation is no longer acceptable in public company audits.

8.)