The Sarbanes Oxley Act Of 2002

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Over the years, regulators and practitioners raise concerns on auditor independence. The Sarbanes-Oxley Act of 2002 includes rules on auditor responsibility and independence. The PCAOB designed policies on auditors’ ethical behavior and independence. The AICPA Code of Professional Conduct contains Section 101 – Independence that describes requirements for the auditor during engagements. The regulators establish principles and standards of the accounting profession, but the number of financial scandals continue increases due to the audit failure. The auditor independence is one of the important elements of quality audit. The independence safeguards auditor/client relationships, ensures fair disclosure, integrity and objectivity. The audit independence is a complex issue with threats to profession’s fundamental principles. The examples of Enron and Arthur Andersen, Ernst & Young and Lehman Brothers, Ernst & Young and PeopleSoft, and many others demonstrate the lack of auditor independence that led to fraudulent financial reporting of the audited entity. Therefore, regulators together with accounting firms should find ways to eliminate threats of auditor independence and prevent consequences of impairment of auditor independence. Purpose of Research and Research Question The purpose of this research is to analyze the effect of auditor independence on audit quality. The primary research questions are: 1. What are the threats to auditor independence? 2. How does the auditor

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