Foamex International Inc. Essay

According to the Public Company Accounting Oversight Board (PCAOB), The primary objective and responsibilities of auditor is to express an opinion on the fairness with which all financial statement including all of its (material aspects, financial position, the result of the company operation and its overall level of cash flows) AU Suction 110. Thus, what this means is that auditor must be fully independent and must be fully able and willing to apply professional judgment as it relates to the audit engagement under consideration.

The Committee of Sponsoring Organizations (COSO) defines internal control as a process, effected by and entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding the reliability or financial reporting, the effectiveness and efficiency of operations, and compliance with applicable laws and regulations. (Louwers, Ramsay, Sinason, Strawser, & Thibodeau, 2015). Internal Control helps entities achieve important objectives and sustain and impose performance. A properly

Internal controls are regulated by the Sarbanes-Oxley Act of 2002. This act assigns responsibility for a company’s internal controls on its executives and directors (Kiesco et.al., 2008). This assignment of responsibility forces the company to use effective internal controls by making a certain group responsible. The act also established the Public Company Accounting Oversight Board which regulates the activities of auditors. Together, assigning responsibility and defining the standards of auditors, the Sarbanes-Oxley Act of 2002 helps to safeguard a company’s investments, assets and future successes by discouraging fraud and theft.

As the business sector has been evolving and innovating, so must the public audit profession. Many businesses now use high levels of automation and computer assistance (Byrnes, et al., 2012). For public auditors to remain relevant, it is imperative that the profession as a whole continue receiving education pertinent to businesses and business processes. Over and above staying relevant, the new purpose of the public auditor is to maintain the honor of the audit profession as the ones who protect and serve the investors and general public.

The Sarbanes-Oxley Act of 2002 significantly increased the authority of audit committees in overseeing their companies’ financial reporting processes. One of the audit committee’s responsibilities is that they oversee the financial reporting process. Audit committees are required to review and discuss the annual audited financial statements with management and the external auditors. They also monitor control processes. Monitoring internal controls directly affects the reliability of financial statements is generally understood to be a function of audit committees. SOX section 301 directed the SEC to require audit committees to establish procedures to handle complaints on accounting, internal accounting controls, or auditing matters and to provide confidentiality to employees who submit complaints. Section 301 also states that audit committees are solely responsible for all the aspects relating to selecting, hiring, and replacing external auditors, whom report to the audit committee. An audit committee approves the compensation to external auditors. It also states that audit committees must discuss and resolve disagreements between management and external auditors.

The Public Company Accounting Oversight Board (PCAOB) was established as a result of corporate scandals that led to the passing of the Sarbanes-Oxley Act of 2002. This paper will explore the circumstances that led to the creation of the PCAOB. I will then go on to discuss the roles and responsibilities of the PCAOB, and suggestions for improvement of the PCAOB auditing process.

Part two, entitled auditor independence, helped create a statutory code of ethics for public accounting firms. New, specific regulations were set up to dissuade ethic violations. A list was created of consulting services that audit companies cannot perform for companies that they audit and senior management conflicts were resolved by not allowing audit firms to audit if a senior manager was a former employee of the audit company. Auditors were required to rotate the companies that they audit every five years and auditors must report to an audit committee. Laws and regulations for accounting firms were encouraged. (Jennings, 2012)

The Public Company Accounting Oversight is a nonprofit corporation which, in 2002, Congress granted power to inspect, investigate, establish auditing guidelines and set standards for public accounting firms who provide independent auditing reports. The purpose is to create guidelines and rules to protect all stakeholders who would utilize financial reports, especially the general public and investors. An increase in transparency and accountability grants

the auditors of publicly traded companies and to ensure that corporate financial statements are subject

According to AU-C Section 240 paragraph .05, when conducting an audit in accordance with GAAS, an auditor is responsible for obtaining reasonable assurance that the financial statements are free from material misstatement due to error or fraud (2012, December 15). To obtain reasonable assurance, the auditor is responsible for maintaining professional skepticism, considering management’s ability to override controls, and recognizing that audit procedures for detecting error may not be effective in detecting fraud according to paragraph .08 (2012, December

According to the PCAOB Standards, section AU 110.03 clearly states that management shall bear responsibility for all issued financial statements, the adoption of sound accounting policies, and for establishing and maintaining a system of internal controls that will record, track and process transactions, events and conditions. Management shall also maintain an understanding of all transactions made within the entity being audited. Due to this fact, management is also responsible for the fair presentation of financial statements in compliance with generally accepted accounting

The auditor must obtain an understanding of the entity and its environment, including internal controls, so that they can identify and assess the risks of material misstatement on financial statements due to fraud or error and design and perform further audit procedures.

If these standards are not followed there are strict consequences that could cause the loss of designation and even criminal charges. Also, small accounting firms with few clients that make up a large percentage of their income may face an even greater power imbalance between client and auditor. Recommendations such as rotating audits periodically or rotating partners within a firm every 5 years have suggested as ways of keeping independence and ensuring that the auditors are focused on job quality versus keeping the audit and getting paid. However, the best method would be if a special board were set up to investigate why auditors have been fired. If during the investigation it is revealed that disagreement occurred between management and auditors over financial statements and presentation then a third party should be involved. Although there are new accounting policies and bodies in place to restrict this power imbalance; it will never be fully eliminated.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.

Auditing standards in UK and Ireland, including Ethical Standards, International Standards on Auditing and International Standard on Quality Control, are enacted for audits of financial statements. The content of these standards includes objectives for the auditor, requirements and application and other explanatory material.