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Sarbanes-Oxley Act Of 2002 Summary

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1. Analysis of independence in the Sarbanes–Oxley Act of 2002 The Sarbanes–Oxley Act of 2002, also known as Public Company Accounting Reform and Investor Protection Act, is a federal law which was enacted in 2002. important reason resulting in the enactment of the Sarbanes- Oxley Act of 2002. The las set new or expanded requirements for all U.S. public company boards. Enron scandal is the most management and public accounting firms, such as the requirements for external auditors. In Title II—Auditor Independence, Section 201 (g), (h), and Section 202 (i) set up rules for public accounting firms. And Section 208 (b) concludes them. Section 201 Services outside the scope of practice of auditors states the following: “(g) PROHIBITED ACTIVITIES.—Except …show more content…

Independence and objectivity are most fundamental guarantee for auditors to perform services with no bias and preferences, especially for internal auditors. Internal auditors may know the information and situations of their company, which makes them more difficult to perform auditing actions. Therefore, keeping independent and objective helps auditors audit the company and report the real information and financial position to management and audit committee. This also helps the company grow healthily, and managers could adopt related and effective measurements to problems in the company. Any elements which can impair independence or objectivity should be focused on and avoided if possible, also the auditors should report the impairment to audit …show more content…

How internal auditors maintain objectivity and independence in the reports? I think there are three ways can help internal auditors be independent and objective. First, management’s help. Internal auditors shall communicate and report to management frequently. Auditors would get directions and support from CEO. More transparent between auditors and managers, more objective and independent. Second, the oversight’s help. Oversight always reminds auditors to be ethical. It helps auditors without bias and judgements. Also, the oversight might avoid internal auditors’ conflict of interest. Last and more important, the communication with audit committee. Internal auditors should report to audit committee periodically, which helps auditors get support, effective strategy, and directions. Audit committee can enhance the organizational status of internal auditing, and ensure the auditors’ independence and objectivity. 5. Why is it important for Internal Auditors to be independent? Internal auditing is an activity adopted by an organization, such as company, institute, and government, to help themselves. It is an approach to add the value and improve the operations, also internal auditing can help to better assist management in the improvement of internal controls, mitigate the management of risk, and govern the organization. Internal auditing must have independence, objectivity, integrity and

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The financial scandals in early 2000s caused the Sarbanes-Oxley Act of 2002 to be created. Enron, WorldCom and the accounting firm, Arthur Andersen, to intentionally mislead their shareholders by exaggerating their profits and understating their expenses. The scandals had raised the importance of internal control for enhancing corporate governance. Therefore, the government established the SOX to protect the interest of the investors and employees and to monitor the companies and auditors.

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Named after its creators Senator Paul Sarbanes and Representative Michael Oxley, the Sarbanes–Oxley Act of 2002 (SOX) was enacted on July 30, 2002 by President George W. Bush. .Sox is also known as the Public Company Accounting Reform and Investor Protection Act of 2002. It is widely known as the most significant reform since the formation of the Securities and Exchange Commission of 1943. Consequently major corporate scandals such as Enron, Worldcom and Tyco led to The Sarbanes Oxley Act. The act sets strict reforms to the financial practices and corporate governance of public corporations, accounting and management firms.

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I can simply answer because I want to be a hero. In my opinion, an auditor is a dark knight that saves the world secretly and silently. An auditor has to commit to do his job professionally as well as ethically. As a matter of fact, there have been many corporate and accounting frauds, such as the WorldCom scandal in 2002 and the Madoff Ponzi scheme in 2008,

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Confidentiality: All auditors either external or internal owes the client a duty of respecting the value and ownership of information they obtain from the client, and they should disclose that information without the consent of the client, where there is a legal obligation to do so or a professional obligation. Independence: The auditor

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It is argued that independence is the most important for accountants especially working as auditors or assurance providers for the following reasons. Firstly, corporate governance reports have focused on the reliability of financial information as a key part of corporate administration. Shareholders and different partners require a dependable record of executives' stewardship to have the capacity to take choices about the organization. Assurance provided by independent auditors is seen as the quality control on the dependability of data. In addition, a report by independent external auditors on the accounts would create more credibility, which improves the attraction of the company to investors.

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This instance clearly highlights the importance of internal control functions that identify, assess, monitor and report the risks and controls effectiveness on an ongoing basis   Governing Bodies or Organizations These governing bodies have enacted and developed various professional standards and acts that form the basis of audit principles. Table 2 List of governing bodies for Audit Organization Name Principles or Acts or Standards relevant for Audit function Remarks IIA (The Institute of Internal Auditors) International Professional Practices Framework • Basis for audit techniques and procedures • Standard for evaluating internal audit function AICPA (American Institute of Certified Public Account) Statement on Auditing Standards • Statements on Auditing Standards (SASs) • Statements on Standards for Attestation Engagements (SSAEs) • Statements on Quality Control Standards

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First, internal auditors deter financial fraud just by being there. Individuals are far less likely to attempt to commit fraud when they know that they are under a watchful eye. Second internal auditors place controls on business processes and perform routine tests to make sure that the controls are effective. Finally internal auditors perform in-depth special investigations when irregularities are found and they determine which individuals are creating irregularities.

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The autonomy prerequisites which apply to auditors are lawfully enforceable and are situated in the enactment and standards. Keeping up independence has various viewpoints that the auditor must be aware of all through the client-auditor relationship. One of the aspects an auditor must know about and execute proper reactions is the conflict of interest; the general necessities, including

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It provides a snapshot of everything i.e. what is working good/what is not/how we can improvise it. An audit of this kind doesn’t essentially scrutinize the minute communication in detail rather it is used to review the communication which is positioned within the company wherein the strategic level at which it runs and also its capacity to lead to better productivity and efficiency. The main objective to strategize and conduct various activities and programs are to achieve brand recognition, modify perceptions, maximize sales, encourage community support or establish

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Rules based accounting: Following the accounting scandals of Enron and WorldCom the United States introduced the Sarbanes-Oxley Act 2002. This act introduced a set of rules for accounts to be prepared in accordance with and if these rules were not adhered to then significant potential sanctions could be imposed on directors. WorldCom were one of America’s largest long distance phone companies and between 1999 and 2002 had one of the world’s largest accounting scandals. WorldCom managed to inflate profits by $3.8 billion by booking expenses as capital expenditure and inflating revenues from fictitious accounts.

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However, “audit procedures did not reflect consideration of this risk” (Edelman & Nicholson, 2010). In 2001, the SEC was beginning to investigate Enron. David Duncan had ordered the auditors of Enron to shred any related documents. “The firm lost the majority of its clients and most of its talented employees” (Edelman & Nicholson). Arthur Andersen’s reputation was

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