The Audit Reform Package Was Introduced By The European Union

Professional standards do not allow for a company’s auditors to also provide tax services and still retain their independence. The SEC and the PCAOB have put restrictions on the nonaudit services that a company’s auditors can provide. These restrictions really limit the company’s auditors to the extent that if a firm provides auditing services for a company they cannot really provide any other types of services. This limitation was put into place in order to maintain the independence of auditors and the companies that they audit. If an accounting firm was allowed to provide auditing services as well as tax services to a company, the independence, in such a case, of the firm would not be maintained because the firm would be in part auditing

Increase the consequences to the audit committee and the auditors if they submit incorrect reports.

Auditor Independence contains 9 parts which stablish standards for external auditor independence, so it will have limit conflicts of interest, also contains that an approval requirements for new auditor, audit partner rotation, and auditor reporting requirements. Also restrict auditing organization from providing non audit services for the same clients they audit.

Auditing firms are no longer able to focus primarily on selling additional services. Instead, they are now concerned with providing excellent service to the client. This has resulted in additional tax and financial reporting

Legitimacy in accounting practices is ensured by the check and balance of having independent auditors from registered public accountant firms reviewing financial practices. The report features eleven sections and these sections pertain to accounting overview, independence of auditors to reduce interest conflicts, corporate responsibility, financial disclosures, tax returns, criminal fraud and various elements of white collar criminal activity (107th Congress

Exceptions can be approved by the Board and are made in cases where the revenue paid for such services contributes less than 5% of revenues paid to the auditing firm. Also, a public accounting firm may provide these non-audit services along with audit services if it is pre-approved by the audit committee of the public company. The audit committee will disclose to investors in periodic reports its decision to approve the performance of non-audit services and audit services by the same accounting firm. This requirement to disclose to investors is likely to inhibit auditing committees from approving the performance of auditing and non-auditing services by the same accounting firm. Other sections outline audit partner rotations, accounting firm reporting procedures, and executive officer independence. Specifically, subsection 206 states that the CEO, Controller, CFO, Chief Accounting Officer or similarly positioned employees cannot have been employed by the company's audit firm for one year prior to the audit.

Section 201 prohibits any registered public accounting firm from providing the following non-audit services to audit clients: “bookkeeping or other services related to the accounting records, financial info systems design or implementation, appraisal or valuation services, fairness opinions, actuarial services, internal audit outsourcing services, management functions or human resources, broker or dealer investment advisor or investment banking services, legal services and expert services unrelated to the audit, any other service the board determines impermissible” (Sarbanes-Oxley Act, 2002). Section 202 requires the issuer’s audit committee to preapprove all auditing and non-auditing services that will be provided to the issuer (Philipp, CPA, & CGMA, 2014). Section 203 establishes mandatory and substantive rotation of audit partner and partner responsible for review of the audit every 5 years (Philipp, CPA, & CGMA, 2014). Section 204 needs the public accounting firm to report to the audit committee such as “critical accounting policies and practices, alternative accounting treatments within GAAP discussed with management and material written communications between auditor’s firm and management of the issuer” (Philipp, CPA, & CGMA, 2014). Section 206 prohibits the public accounting firm from providing audit services for the issuer if the CEO, CFO, CAO or any person serving in the equivalent capacity of

The Auditing Standards Board (ASB) redrafted the standards for clarity and reorganized all of the auditing sections (AU) into new one adding C after (AU-C), bringing both significant and subtle changes. For some of the standards only the format changed but others significantly impacted the auditor’s work. This project was very important for the globalization

The first is that raised cost through the additional time spent and additional set up costs as well. It affects in both auditors and managers of firms. For the manager, ‘New auditors, they argue lack sufficient knowledge regarding firm-specific risks and, as a consequence, audit failures would likely increase.’ (782, purple) Supposing firm does not need to change related audit company, auditors might know better about firm specific expertise as well as they might not be fully understand of financial statements. For the auditors, if compulsory audit firm radiation implemented under the government regulation, new audit firms should investigate new client to analyze their characteristics and management flows. Therefore it could be concluded that will be high costly because of additional costs such as human resources and time to catch up compared with keeping one audit firm

An auditor’s role in an audit is very important. An auditor must be able to collect enough evidence to supports their finding, and also be on the lookout for fraud. Company’s may or may not know the law, but it is the job to know the law, and be able to educate and report findings properly. Since the Sarbanes-Oxley Act, there have been provisions that have directly affected auditors. This paper will include the details of the Sarbanes-Oxley Act, how ethics and independence have affected auditors, as well implementation of new standards based on the Sarbanes-Oxley Act.

This title consists of 9 sections that instruct in the behavior of auditing firms and establish guidelines for external auditor independence. It also sets restrictions for clients outside of auditing boundaries and requirements for audit partner rotation.

Sarbanes Oxley Act of 2002 was enacted to protect investors by improving the accuracy and reliability of corporate disclosures. (Public Law 107-204, 2002) This law affects any publically traded company regardless of the industry of the business. Corporate management is held responsible for the validity of the financial statements, internal controls, and is required to submit Form 10-K to SEC every quarter. The Public Company Accounting Oversight Board was created by this act and given the authority to oversee how audits are performed. Audit firms are now required to undergo inspections by the PCAOB. PCAOB mandates accounting and auditing standards. Auditors are required to maintain independence and have a rotation requirement of every five years. It is illegal for corporate management to improperly influence the conduct of audits. The act also enhances corporate disclosure. Corporate management has a requirement of forfeiting

It was found that “99% of FTSE 100 and 97% of FTSE 250 firms are audited by one of the Big Four” (Martin, 2006) which had a big impact on room for competition within the market. Also Familiarity within the ‘big four’ was another issue. Companies and their auditors are seen to be “too cosy” this can affect interest between parties and increase the risk of conflict of interest. It was also found that the aims of the reform was to give smaller and midsize audit firms a better chance at winning auditing job. Also aimed to “clarify the role of auditor, to reinforce their independence, improve their supervision, and to reduce the red tape for smaller and mid-sized businesses.” (CBI 2014)

Strategic objectives- pertain to value creation management makes on behalf of shareholders. Longterm strategies look

This includes the indirect ability of management to influence the career prospects of internal auditors, as well as the budget and planning of the internal audit function. This is exacerbated by internal auditors themselves using the function as a stepping stone to advance their career objectives. It also can be argued that the independence theory may be lost in such a culture, especially if it is combined with people within the organization perceiving internal auditors as partners, thereby subjecting the internal audit function to pressures threatening its independence, rather than recognizing the internal audit function as an independent assurance function("A Critical Analysis Of The Independence Of The Internal Audit Function: Evidence From Australia: Accounting, Auditing & Accountability Journal: Vol 22, No