The Oversight And Authority Over Public Accounting Firms

769 Words Apr 24th, 2016 4 Pages
Title I increases the oversight and authority over public accounting firms which was lacking before SOX was enacted. The public accounting firms were able to focus in their own interest rather than public interest since there is no law enforcing them. The routine inspection for public accounting firms and the threat of any wrongdoing publication will keep the firms to act at their best behavior. The inspection will catch their wrongful doings before it is too late to recover. The individual auditors will reconsider before they commit any frauds as they might not want to face fines or CPA licenses revocation.
Title II focuses on eliminating conflict of interest between the audit firms and their clients in the audit process. Prohibiting some non-audit services that can be performed by the audit firms reduces the auditor’s motive of overlooking the wrongdoing in order to gain more revenue from consulting. This is what happened in Arthur Andersen with Enron. Requiring the audit partners rotate every five years eliminate the familiarity threat which CPAs having a longstanding relationship with a client that can lead to things being overlooked or inappropriate opinions being given. Prohibiting the auditors being hired by clients reduces the lack of auditor’s independence because of potential job opportunities.
Title III focuses on preventing fraud, mostly related to CEOs and CFOs of public companies. Before SOX and this requirement, CEOs and CFOs simply deny in any knowledge of…
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