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Sarbanes-Oxley Act

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    Sarbanes Oxley Act

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     The Sarbanes - Oxley Act of 2002, is propounded by the sponsor Paul Sarbanes and its Representative Michael G. Oxley.  This law is designed by being influenced from the financial scandals prevalent in economy, such cases are Enron and WorldCom.  This law is designed with an objective to formulate the strict standards against all US publicly traded companies. Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB), which has an obligation to oversee, regulate, inspect, and create disciplinary standards for accounting firms with respect to the specific roles of them as auditors of public companies, is incorporated under this act. Introduction

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     The lack of credibility caused by financial scandals of Enron and Worldcom was responsible for the introduction in 2002 of the Public Company Accounting Oversight Board (PCAOB) by the SEC in the United States, and the Canadian Public Accountability Board (CPAB) by the Canadian Institute of Chartered Accountants (CICA).  The PCAOB will oversee professional accountants who are able to practice before the SEC on large companies whose stock is traded on U.S. stock exchanges Provision for PCOAB

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     The duties expected of a profession are the maintenance of:  Competence in the field of expertise.  Objectivity in the offering of service.  Integrity in client dealings.  Confidentiality with regard to client matters.  Discipline over members who do not discharge these duties according to the standards expected. Responsibilities and Duties

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    Significant provisions: TITLE I: Public Company Accounting Oversight Board 101 Establishment and administrative provisions. The Board: • Is a nonprofit corporation, not an agency of the U.S. government. • Will have five financially literate members who are prominent individuals of integrity and reputation with a commitment to th e interests of investors and the public. • Has authority to set standards related to audit reports and to conduct inspections of registered public accounting firms. 102 Registration with the Board: • Accounting firms auditing public companies must register with the PCAOB. 103 Auditing, quality control, and independence standards and rules. The Board: • Will establish or adopt rules regarding the conduct of audits and regarding audit firm quality control standards. • Will require audit firms to describe the scope of testing of issuers’ internal control structure. 104 Inspections of registered public accounting firms. The Board will: • Inspect annually registered accounting firms that audit more than 100 issuers. • Inspect at least every three years registered accounting firms that audit fewer than 100 issuers. • Publicly report results of its inspections. 105 Investigations and disciplinary proceedings. The Board will: • Adopt procedures for disciplining registered accounting firms. • Require registered accounting firms to provide documentation and testimony that the Board deems necessary to conduct investig ati ons. • Be able to sanction registered accounting firms for noncooperation with investigations. 106 Foreign public accounting firms. Foreign accounting firms must comply with the same rules related to the PCAOB as domestic ac cou nting firms. 107 Commission oversight of the Board. The SEC has oversight and enforcement authority over the Board, including in processes inv olv ing standards setting, enforcement, and disciplinary procedures. 108 Accounting standards. The SEC will recognize as “generally accepted” accounting principles that are established by a standard se tter that meets the Act’s criteria.

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    Provisions for Auditing Committee TITLE II: Auditor Independence 201 Services outside the scope of practice of auditors. There exist a variety of services that registered accounting firms may no t perform for issuers, e.g., bookkeeping, systems design, appraisal services, and internal auditing, among others. Tax services ma y be performed, but only with preapproval by the audit committee. 202 Preapproval requirements. All audit and nonaudit services (with certain exceptions based on size and practicality) must be approved by the audit committee of the issuer. 203 Audit partner rotation. The lead partner and reviewing partner must rotate off the issuer engagement at least every five year s. 204 • Auditor reports to audit committees. Registered accounting firms must report to the audit committee issues concerning:Critical accounting policies and practices. • Alternative treatments of financial information within generally accepted accounting principles that have been considered by management, and the preferred treatment of the accounting firm. • Significant written communications between the accounting firm and management. 205 Conforming amendments. This section details minor wording changes between the Sarbanes - Oxley Act and the Securities Act of 1934. 206 Conflicts of interest. Registered accounting firms may not perform audits for an issuer whose CEO, CFO, controller, chief accounting officer, or other equivalent position was employed by the accounting firm during the one - year period preceding the audit, i.e., a “cooling off period.” 207 Study of mandatory rotation of registered public accounting firms. The Comptroller General of the United States shall conduct a study addressing this issue.

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