Content Chapter13: Securities Regulation and Compliance Ethics Issue Prior to Sa

Question

Content Chapter13: Securities Regulation and Compliance Ethics Issue Prior to Sarbanes-Oxley, auditing companies had engaged in nonauditing functions with the corporations they audited. Although this had been cause for concern by the SEC, rules were not promulgated until mandated by Sarbanes-Oxley. Now, auditing companies are forbidden to perform nonauditing services simultaneously with auditing services. Auditing companies must now contract with the audit committee of the corporation they propose to audit, rather than with the management of the corporation, as had been the practice before. The Act also made the audit committee directly responsible for the appointment, compensation, and oversight of any work done by the auditors. Do you think this will change the nature of how an audit is done? Do you think it will prevent the auditors from engaging in practices that could undermine the intent of Sarbanes-Oxley? Do you think the added layer of requiring the CEO and CFO to certify the work of the auditing committee helps to bring back the balance that was lost by commingling accounting practices and auditing practices? p. 333 2012 McGraw-Hill Higher Education Any use is subject to the Terms of Use and Privacy Notice

Explanation / Answer

Yes, this will change the nature of how the audit is done as follows:

1. Ensure objectivity in reporting discrepancies by auditors as the audit services and non-audit services will be provided by a different set of individuals. The absence of prior familiarity with organization processes will ensure an objective and fair audit.

2. The audit committee will be responsible for any appointment, compensation, and oversight by auditors, this will put an added pressure on the auditors to ensure fair practices are followed and the organization accounting systems as per laid principles and necessary compliances are undertaken.

3. The top management decision will also come under the purview of the auditors. They are also required to personally verify the financial account statements accuracy.

Yes, it could act as a deterrent to prevent the auditors from engaging in activities which are undermining the intent of Sarbanes-Oxley act as it requires public companies to strengthen the audit committees, perform internal control tests, make directors and managers personally responsible for accuracy in financial reporting, and to strengthen disclosure.

“The main deterrent to the auditors is the rules laid down in the Sarbanes-Oxley Act. It has imposed strict criminal penalties for security frauds and ensures changes in the way how public accounting firms operate while complying with all accounting principles.”

Yes, the added layer of requiring the CEO’s and CFO’s to certify the work of the audit committee helps to bring back the balance that was lost due to the mixing of accounting and auditing practices as follows:

To sum it up the act is in place to ensure accounting and auditing is done by different individuals, top management’s accountability has increased; the audit committee has to change every five years. Non-compliance with the act and inaccurate reporting can lead to strict criminal penalties and imprisonment.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.