G) Discuss the Private Securities Litigation Reform Act of 1995 (PSLRA) passed b
ID: 2339819 • Letter: G
Question
G) Discuss the Private Securities Litigation Reform Act of 1995 (PSLRA) passed by Congress over the Presidential veto. What impact did the PSLRA have on audits and auditors? H) The Frontline story told of a squeeze on Auditing Fees in the late 1990s, the growth of consulting services, and the possible impairment on Auditor Independence. Describe the consequences of this environment as described in the story Be certain to discuss the new business model of the CPA firms (consulting). Some say the audit was relegated to a commodity at that time. What do you think they meant by this? Was this problem resolved by Sarbanes-Oxley (SOX)? Cite and describe what was done by SOX and reference the SOX Act section ID) Discuss the issue of Mr. Carl Bass at Arthur Andersen (the Quality Control partner for the worldwide firm). What did Mr. Bass allege and what happened to Mr. Bass? How did Enron figure into the demise of Mr. Bass? Why did Andersen give into the Enron Senior Management? J) A common theme in the scandals was that senior management did not let the Board know what was happening. In a post Sarbanes-Oxley world, what specific items or procedures may keep this from happening in the future? How has Sarbanes-Oxley addressed any of the concems brought up in the program Bigger Than Enron? Do you think the measures found in Sarbanes-Oxley will be effective? K) The former Chief Accountant at the SEC Mr. Lynn Turner described a system of people working at the large accounting and brokerage firms who would do nothing all day except think of was to circumvent GAAP. Such groups have led to the call for a "principles-based system instead of a "rules-based system" of GAAP. Can you describe what is meant by such a system and how it may work? What is your opinion on the large audit firms participating in such an , activity?Explanation / Answer
he purpose of the Private Securities Litigation Reform Act was to prevent unwarranted, flimsy, or fraudulent lawsuits from being filed, which can be expensive and tie up the efficiency of the legal system. It also reduced litigation risk for certain companies who faced these types of lawsuits on a regular basis.
The adoption of the Private Securities Litigation Reform Act of 1995 had a marked impact on public accounting firms in the US by significantly reducing their liability exposure with respect to litigation involving publicly traded audit clients. This shift in the litigation environment of public accounting firms has been argued to have been manifest in changed auditor decisions regarding their audit clients.
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