Discuss the Sarbanes-Oxley Act. What effect has it had on companies’ auditing processes
Discussion topic:
1. Discuss the Sarbanes-Oxley Act. What effect has it had on companies’ auditing processes? In what was has this affect been a positive one?
Student Response Post
2. Discuss the Sarbanes-Oxley Act. What effect has it had on companies’ auditing processes? In what was has this affect been a positive one?
The Sarbanes-Oxley Act of 2002 is a primary example of legislation following financial market failure. Sarbanes-Oxley influenced public businesses through transformation of the financial system. The July 2002 enactment of the Sarbanes Oxley Act, co-authored by U.S. Sen. Paul Sarbanes of Maryland and U.S. Rep. Michael Oxley of Ohio, followed a series of large public company failures that included Enron, Tyco and WorldCom. Sarbanes-Oxley addressed investor confidence and fraud through reform of the public company reporting standards. However, much damage in the market occurred with the collapse of several major companies between 2002 and 2004. The swath of change brought about by Sarbanes-Oxley is wide and deep. The primary changes resulted in the creation of the Public Company Accounting Oversight Board, the assessment of personal liability to auditors, executives and board members and creation of the Section 404. That section refers to required internal control procedures, which did not exist before Sarbanes-Oxley. Public companies are now required to include an internal control report with their annual audit. The oversight board is responsible for monitoring public accounting companies, and works with the SEC. Based on size, accounting forms undergo reviews every one to three years. In addition to the board reviews, public accounting firms now carry personal liability for their audits.
Reference
https://smallbusiness.chron.com/impact-sarbanes-oxley-act-american-businesses-1547.html
3. Sarbanes-Oxley Act passed on July 30, 2002 was meant to protect investors from fraudulent financial reporting by some corporations especially after the infamous financial scandal of various corporations including Enron, WorldCom, and Tyco International.
Explanation:
The act was set up in response to the numerous scandals financial reporting that had been experienced during early 2000. The act was meant to make financial reporting and auditing more transparent and making auditors more responsible and accountable to their audited reports. The act requires that internal auditors and corporate managers establish more internal controls and employ strict reporting techniques to ensure that the controls are adhered to adequately. The positive effect of this act was to establish strict financial reporting regulations that would protect investors from being exposed to fraud especially when companies fail to report the financial records adequately.
Effect on Companies Auditing process-
1) More compliance verification needs to be done by the auditor. Hence, the cost and time involved in doing the audit, increases.
2) Purchase of compliance software or implementing recognized COSO framework that involves higher costs.
How this effect has been a positive one-
1) Greater corporate transparency is achieved.
2) Financial Statements and Foreclosures are made more reliable.
3) Overall increase in investor’s wealth and investor’s confidence.
4) More effective co-ordination with external auditors, resulting in higher quality of work
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