Acc 564 Assignment 1

Auditing I Sarbanes Oxley personation Assignment 1 Rachael Lantz 8/15/2012 Since the fiscal crisis investors fill become less confident in the companies at heart the market. In coif to restore confidence within the market and the inspects of their financial statements Senator Sarbanes and Representative Oxley created the polity known as the Sarbanes Oxley Act which came into effect in 2002. The legislation created major(ip) regulations on company financial coverage and the regulation of it.Forcing focussing to be accountable for the financial overlaying and internal understands within their company and requiring the inspect committees to report on their stamp of the companys internal fermentes. (Soxlaw. com) The SarbanesOxley comprise requires that the scrutinize committee of a frequent company consist just of independent members and be responsible for(p) for the appointment, termination, and compensation of the audit firm.Becaexercising the Sarbanes-Oxley Act of 2002 explicitly shifts responsibility for hiring and firing of the attender from attention to the audit committee for public companies, the audit committee is viewed as the client in those engagements. Beca manipulation of the lack of license between the parties involved, the Sarbanes-Oxley Act prohibits related party transactions that involve ain loans to executives. It is now unlawful for any public company to provide ad hominem credit or loans to any director or executive policeman of the company.Banks or other financial institutions be permitted to make normal loans to their directors and officers utilise market rates, such as residential mortgages. This tighten ups the risk of assets being employ by the management. (Arens, 2010) The risk of fraud has been reduced since the passage of the Sarbanes Oxley Act of 2002. By requiring that the financial statements are a fair representation of the company the heart and soul of fraudulent statements produced has been reduced. The Act regulates that the chief executive officer and the chief financial fficer and the external meeters have appraiseed the financial reports and that they are free from material misstatements or misleading reading. Section 404 of the act requires that the auditor attest to and issue a report on managements assessment of internal visualise over financial reporting. To express an opinion on internal controls, the auditor obtains an understanding of and performs tests of controls related to whole significant account balances, classes of transactions, and disclosures and related assertions in the financial statements (Arens, 2010).The act requires management to disclose all material information or changes within their accounting processes. By requiring senior management to review the reports they are held accountable for the financial accounting of the firm, and procedures to prevent employees and other members within an organization from committing fraud or theft and manageme nt is legally responsible if material misstatements have been made.By making management accountable then they are less likely to commit fraud if faced with jail time. wariness and stockholders frequently have different goals. wariness often wishes to expand and use the companys assets in different ways than a stockholder. Managements accountability of the financial reports often helps encourage management to use company assets in appropriate ways. Disclosures were also a reduction in risk of fraud because all material information must be disclosed.By requiring this disclosure if a companys net income increased this category due to a change in accounting method or principle this information must be disclosed in the one-year report. (sec. gov) The public company accounting oversight board, PCAOB is a non-profit organization created by the Sarbanes Oxley Act of 2002 to oversee the audits of public companies. The PCAOB helps to protect the investors from fraud by regulation auditor s requirements within the Sarbanes Oxley Act (pcaobus. org).PCAOB Standard 2 requires that the audit report on internal control over financial reporting under Sarbanes-Oxley include the auditors opinion as to whether managements assessment of the design and operating dominance of internal control over financial reporting is fairly stated in all material respects. Management must document the design of controls, including all quintuple control components and also the results of its testing and evaluation. The types of information gathered by management to assess and document internal control effectiveness can pull away many forms, including policy anuals, flowcharts, narratives, documents, questionnaires and other forms that are in either writing or electronic formats. The process to develop the auditors opinion involves both evaluating managements assessment process and arriving at the auditors independent assessment of the internal controls design and operating effectiveness (A rens, 2010) With the passage of the act in 2002 there are now laws authorities the relationship between corporations and the auditing firms, the requirement of auditors to be rotated on a regular basis, and the enforcement and regulation of internal controls.Accounting professionals such as Certified humans Accountants have seen an increase in the demand of the services since the act has been pose into action. And senior auditors have become more involved within the audit committee. The relationship between auditors and their clients has changed since the passage of the act. With rotation requirements auditors are no daylong influenced by management to report anything other than their independent opinions. (aicpa. org) Since the passage of SOX Act the auditing profession has been regulated for the first time.The PCAOB board members are appointed by the Securities and Exchange Commission and therefore government regulated. Under these regulations investors and potential investors are fracture protected from fraud. By requiring the auditors to be accountable as easy as the management the public are given a better more accurate representation of the company in the annual report. With these regulations in place and the increases in regulations within the future the amount of frauds will reduce each year. After the passage of the act with the exception of the years 2007 and 2009 the second-rate number of disciplinary actions against auditors is four.With the board regulating auditor standards the temptation to report incorrectly on an audit has decreased. For instance the board is in the process of amending the act to disclose relationships with related parties and their transactions because these transactions are delicate to account for and propose a threat to misstatements (sec. gov). References Arens, Elder, Beasley, 2010 Custom Edition, Auditing and assurance services, Pearson Publishing. http//www. soxlaw. com/index. htm http//pcaobus. org/Pages/default . aspx http//www. sec. gov/ roughly/laws/soa2002. pdf http//www. aicpa. org/Pages/Default. aspx