SU Advanced Auditing Learning About the 2002 Sarbanes Oxley Act Discussion

Discussion Topic: Learning about the Sarbanes-Oxley Act

For this Discussion, you will first need to read details related tothe Sarbanes Oxley Act of 2002. The details of the Act can be found at http://www.sec.gov/about/laws.shtml. Make sure to share something different from your classmates.

Having read the Sarbanes Oxley Act of 2002, discuss the following:

1. What is the significance of Section 404?
2. Discuss the role of the PCAOB
3. What other part of the Act did you find interesting? Explain.

Also response each posted #1 to 3 down below

Posted 1

A

states that annual reports, which are required by the Securities

Exchange Act should include an internal control report. The internal

control report should identify the responsibility of managers to

establish and maintain an acceptable internal control system. To

determine the effectiveness of the internal control structure, an

assessment of the most recent fiscal year is conducted.

SubsectionB of the Sarbanes-Oxley Act is titled Internal Control Evaluation andReporting. It requires the accounting firms to attest and report on theassessment made by managers of the issuer. It also provides an exemptionfor smaller issuers that are not considered “large, acceleratedfilers”.

TheSarbanes-Oxley Act created the Public Company Accounting OversightBoard (PCAOB). The role of the PCAOB is to oversee the audits of publicaccountants and protect investors. Audits of brokers and dealers, andcompliance reports filed pursuant to securities laws are monitored toprotect investors and the public’s interest.

Ifound section 404-part B interesting. It is the exemption for smallerissuers. I believe smaller issuers should follow the same guidelines aslarger accelerated filers. It seems like a potential loophole. I couldsee where some companies may attempt to use this to their advantage. Thestandard should be the same for everyone, it makes the rules easier toenforce.

ReferenceSarbanes-Oxley Act of 2002 (2019) http://www.sec.gov/about/laws.shtml

Posted 2

The Sarbanes -Oxley Act of 2002 was enacted by Congress as a reactionto major accounting scandals, including Enron and WorldCom. The lawprovided criminal penalties for misconduct as it related to financialreporting and also expanded the responsibilities of accountants,auditors and corporate boards. The law contains eleven sections,including Section 404.

Section 404 of the law requires public companies’ audit reports toinclude the company’s assessment of its internal controls as well as anauditor’s opinion regarding the adequacy and effectiveness of thoseinternal controls. Internal controls are procedures that ensure theintegrity of financial data and safeguard assets against fraud andmisappropriation. Section 404 is significant because it requires thatinternal controls be addressed by the company and by its independentauditors. It has led to more accountability and less fraud in financialreporting.

The PCAOB (Public Company Accounting Oversight Board) was created bythe Sarbanes-Oxley Act to oversee the audits of public companies. Itseeks to protect the interests of investors, creditors, lenders and thepublic as it relates to audit reports, allowing these stakeholders tobetter rely on audited financial statements. The PCAOB has four primaryfunctions in its oversight – registration, inspection, standard-settingand enforcement. The PCAOB registers audit firms, inspects themannually, sets standards related to audit reports, conductsinvestigations, enforces compliance with rules, and imposes sanctionswhen necessary.

I remember working on “SOX” (Sarbanes-Oxley) implementation teams atDeloitte when this law was enacted. I was managing the audit of taxprovisions at public companies like Fossil, Dean Foods, and GameStop,and it was my job to help their internal tax departments implementinternal controls related to tax reporting. What I found mostinteresting about SOX at that time and even to this day is therequirement that CFOs certify their financial reports. I always feltlike if that was done prior to Enron and Worldcom, it may have savedinvestors millions of dollars and jobs. There is something aboutsigning your name and putting your reputation and livelihood on theline. It makes you take more responsibility for errors andirregularities; thus, you spend more time reviewing the accounting fortransactions and other reporting. I remember the CFOs being nervousespecially as it related to signing off on tax provisions because mostdidn’t have a tax background and were really relying on their taxdepartments.

Reference