Auditors in the Business World

Accounting is the methodical and full recording of financial transactions relating to a business, and it also denotes to the procedure of briefing, examining and evaluating these transactions to cross checking agencies and tax collection agencies. Accounting is one of the key purposes for nearly any company. It may be done by an auditor and accountant at small businesses or by substantial finance subdivisions with lots of employee’s at

Congress enacted the Sarbanes-Oxley (SOX) Act of 2002 to restore investor confidence by requiring public companies to strengthen corporate governance through several mechanisms, including enhanced disclosure on Internal Control Over Financial Reporting (ICFR). As claimed by regulators, the disclosures on the effectiveness of ICFR are aimed at improving the quality of financial reporting, which would, in turn, reduce the information asymmetry for investors in U.S. capital markets” (Donaldson). Sarbanes- Oxley named after its creators, Senator Paul Sarbanes, D-Md and Congressman Michael Oxley, R-Ohio. Enacted in 2002 with the purpose to crack down on corporate fraud. The implementation of Sarbanes-Oxley led to the creation of the Public Company Accounting Oversight Board (PCAOB) to oversee the accounting industry. It was created to eliminate corporate fraud, and it put in place a ban on company loans to executives while also giving job protection to whistleblowers. Before SOX was put into place the accounts were a self-regulated profession, such as medical professionals and lawyers. This is what led to the fraudulent actions of major institutions, people can be greedy, and they need checks and balances to ensure the fidelity of the firm. There are criminal enhanced penalties for corporate fraud and related misdeeds, this brings justice to the sector as well as working as a deterrent for additional immoral

First, Congress saw the need to create an independent body to oversee the audit of public companies that are subject to the securities laws. PCAOB was established to protect the investors and further the public interest in the preparation of informative, accurate, and independent audit reports for public companies. Before the SOX, The

However, the application of SOX has brought on regulations that public companies must put in place and follow to prohibit these unethical occurrences. One major advantage for associated with SOX is that more thorough audits are being conducted by auditing firms. Audits being conducted more thoroughly will provide accuracy and an increased reliability of financial data. This will affect taxes in a positive way and provide firms with an advantage. Causholli, Chambers, and Payne (2014) suggest that prior to the implementation of SOX in 2002, “an auditor’s opportunity to sell additional non-audit services in the subsequent year, coupled with the client’s willingness to buy services, intensified the economic bond between auditor and client, in turn reducing auditor independence and the quality of financial reporting” (p.681). The regulation of auditor provided non-audit tax services has increased the reliability of tax and financial reporting within companies. Seetharaman, Sun, and Wang (2011) explain that “in a post-Sarbanes-Oxley environment, the benefits of auditor-provided non-audit tax services (NATS) seem to manifest themselves in higher quality tax-related financial statement management assertions” (p. 677).

As a result of SOX, top management must individually certify the accuracy of financial information. In addition, penalties for fraudulent financial activity are much more severe. Also, SOX increased the oversight role of boards of directors and the independence of the outside auditors who review the accuracy of corporate financial statements.[1]

The act is an exhaustive piece of legislation that contains eleven major section and some of the most important titles outline requirements on auditor independence, analyst conflict of interests, corporate responsibility, enhanced financial disclosures, internal controls assessment, and corporate fraud accountability (Bainbridge, 2007). One of the main benefits of the legislation is to establish auditor independence requirements and rules for the prevention of conflicts of interest in particular by prohibiting auditing firms from offering other services. Prior to Sarbanes–Oxley, the auditing professionals were self-regulated and the decisions that controlled the industry, such as violation of ethical standards, were made largely by auditors themselves (Verschoor, 2012). In order to prevent conflict of interests, the Sarbanes–Oxley Act grants the PCAOB authority to oversee and regulate auditing firms, conduct investigations, and impose disciplinary sanctions against accounting firms (McDonough, 2004). Another provision of the Act is requiring senior executives to be personally accountable and responsible for the financial information reports by certifying that the information is correct.(Welch, 2006). A byproduct of the law implementation is a significant quality improvement on accounting practices;

Title I of the SOX comprises the creation of the Public Accounting Oversight Board (PCAOB) (Sarbanes-Oxley Act, 2002). The PCAOB is a private-sector, nonprofit corporation which oversees the auditors of public companies. It is to protect the interests of the investors and to further the public interest when preparing informative, fair, and independent audit reports. The title consists of 9 subsections. Section 101 describes the establishment of PCAOB, which consists of 5 full time members, 2 of which are CPAs, all selected by the SEC (Philipp, CPA, & CGMA, 2014). Section 102 states that public accounting firms are required to register with the PCAOB in order to issue or prepare in the issuance of an audit report to an issuer (Philipp, CPA,

The Sarbanes-Oxley Act has many provisions. A few of the major provisions include the creation of the Public Company Oversight Board (PCAOB), Section 201, 203, 204, 302, 404, 809, 902, and 906. The PCAOB was the first true oversight of the accounting industry. It oversees and creates regulations, and it will monitor and investigate audits and auditors of public companies. The PCAOB has the authority to sanction firms and individuals for violations of laws, regulations, and rules. Section 302 requires the CEO and CFO to certify that they reviewed the financial statements, and that they are presented fairly. Section 404 requires management to state whether internal control procedures are adequate and effective, and requires an auditor to attest to the accuracy of the statement. Section 902 states that “It is a crime for any person to corruptly alter, destroy, mutilate, or conceal any document with the intent to impair the object’s integrity or availability for use in an official

On July 30, 2002, The Sarbanes-Oxley Act of 2002 (SOX) was signed into law by President Bush. "The Act mandated some reforms to enhance corporate responsibility, enhance financial disclosures and combat corporate and accounting fraud" (SEC.Gov. 2013 P. 1). The SOX Act also created the Public Company Accounting Oversight Board (PCAOB) in response to numerous failures of the profession to fulfill its trusted role; to oversee the activities of the auditing profession (SEC.Gov, 2013. The auditing of financial statements is required for the protection of public investors; however the question that arises is whether or not all PCAOB members should be taken from the investments communities that use audited financial statements. The remaining of this

The PCAOB is the public accounting oversight board created by the Congress via the Sarbanes-Oxley Act. It appears the PCAOB has laid the groundwork to effectively monitor and review the public accounting

The first title of the Sarbanes-Oxley Act of 2002 relates to the Public Company Accounting Oversight Board (PCAOB) division. The Sarbanes-Oxley Act provided for the creation of PCAOB as an oversight organization to regulate the methods and procedures for auditors while they are performing an audit on a publically traded company. PCAOB is in charge of registering auditors that will be participating in publically traded company audits in addition to monitoring the quality of the audit work that is produced. PCAOB also establishes guidelines and directives that are applicable to all publically traded company audits. Lastly, PCAOB not only monitors the work and actions of independent audit firms, they sanction and enforce disciplinary measure against firms

In some particular case, the accounting standards exactly are the problems. The legislation fixed it though asking those special institution, such as the Securities and commission and the Financial Accounting Standards Board, to tighten the accounting standards. For instants, the “special purpose entities”, that is a institution created by non-profit company , used to treat some particular risk facing by the company during their operating. Nevertheless, in Enron’s case, such institution seems just like useless decorations for their fraud. As required in Sarbanes-Oxley, the capital of Financial Accounting Standard Board should come from itself or public companies. Have no benefit-based relationship with accountants. It ensure that the membership of Financial Accounting Standard Board was independent from accounting operation. The rise in accounting restatements and earnings manipulation suggested that the deeper issue was not with the accounting standards themselves, but rather with the enforcement of those standards through auditing (Bratton, 2003). The Sarbanes-Oxley created a new institution in the first section named Public Company Accounting Oversight Board(PCAOB).

The Sarbanes-Oxley Act (SOX) was enacted in July 30, 2002, by Congress to protect shareholders and the general public from fraudulent corporate practices and accounting errors and to maintain auditor independence.   In protecting the shareholders and the general public the SOX Act is intended to improve the transparency of the financial reporting.   Financial reports are to be certified by the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) creating increased responsibility and independence with auditing by independent audit firms. In discussing the SOX Act, we will focus on how this act affects the CEOs; CFOs; outside independent audit firms; the advantages and a

Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria (Arens, Elder, & Beasley, 2010). Auditing should be done by a competent, independent person. Accounting is the recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making (Arens, Elder, & Beasley, 2010). Many people confuse auditing with accounting because auditing is usually concerned with accounting information, and many auditors have a considerable amount of experience in the accounting profession. This confusion results from the certified public accountant title given to

An important function of the accounting field is to provide external users of financial statements with assurance that the financial information being presented is both reliable and accurate. This basic function of accounting is so important that there is an entire field of experts, called auditors, dedicated to assuring its proper performance. Throughout history there have been many instances in which the basic equilibrium between an institution and current/potential investor has been threatened due to a lack of accountability and trust between the two parties. This issue has been the catalyst for many discussions regarding the proper procedures a firm should follow in order to provide