Question

I worked for Arthur Andersen Accounting Firm (AA) prior to the Enron scandal, which was prior to the SOX legislation. It was later determined that AA auditors were being hired into executive leadership positions of the Enron company and that this behavior may have contributed to Enron receiving an unqualified opinion in there audit reports.

Question: Which of the eight major provision of the SOX act do you feel was directly related to the above described behavior of AA? Why or Why not? Explain!

Answer 1

Sox Act is a United States federal law passed in response to a number of major corporate and accounting scandals including Enron.

Major provisions of the SOX Act are:

1.Strict action against white collar crime.

2.Disclosures of the %of shareholdings by directors, executive officers and principal shareholders.

3.Higher penalities and criminal prosecution on financial frauds.

4.Strict reporting by an auditor on insider trading.

5.Effectiveness of internal control system in the financial reporting.

6.Audit commitee should be formed for resolvation of any conflicts between company and auditor.

7.More independence be given to audit committee and auditor.

8.Creation of Public Company Accounting Oversight Board (PCAOB).

These are the provisions which are made under the act which if follwed by AA auditors then it will not led to scandal or fraud. Executive leadership contributed to unqualified audit report. Now all the provisions shall has to be followed otherwise strict actions shall be taken against the auditors.