Sarbanes Oxley Act Essay

1264 words - 6 pages

In the aftermath of the Enron and WorldCom, Congress enacted the Sarbanes-Oxley Act of 2002. The Act is considered by many to be the most important legislation affecting the auditing profession since the 1933 and 1934 Securities Acts (Arens, 2010). The Act also established the Public Company Accounting Oversight Board (PCAOB). The PCAOB provides oversight for auditors of public companies, establishes auditing and quality control standards for public company audits, and performs inspections of the quality controls at audit firms performing those audits (Arens, 2010). But the question is, are these regulations effective against corporate fraud and protecting investors?
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Lastly, section 802 outlines the criminal penalties for altering, destroying, mutilating, concealing, and falsifying records and documents. This section also outlines penalties on any accountant who knowingly and willfully violates the requirements of maintenance of all audit or review papers (Sarbanes-Oxley Act 2002). Knowing the criminal penalties up front, I feel would keep more auditors honest and independent, especially if they want to avoid jail time. But can more be done? The answer will always be yes, but at what cost and to whom? No law is one hundred percent effective at deterring wrong doing. Greed is a powerful emotion and unfortunately some people are driven by it. Legislators can strengthen the law or provide stiffer penalties, but if someone is driven by greed, no law or penalty can or will stop them from trying to commit fraud.
The PCAOB was established by Congress to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports (Public Company Accounting Oversight Baord). The Board conducts inspections of public accounting firms annually and whatever discipline actions or sanctions the Board imposes are enforceable. The Board was also charged with establishing the auditing and other professional standards that govern public company audits. The standards established by the PCAOB gives conformity to all public company audits; gone are the days of such self-regulation. This is a good thing; there should be standards and uniformity for all public company audits; especially for companies within the same industry. With the requirement of having to rotate auditors every five years, this standardization will prove to be useful. There should be transparency from the audit process and reports from one auditor to the next.
Prior to the enactment of the Sarbanes-Oxley act and the establishment of the PCAOB, the accounting profession was self-regulated. I believe that the profession should be government regulated. Just look at the examples of fraud leading up to the enactment of the Sarbanes-Oxley Act. With such big scandals as Enron, Tyco, and WorldCom, it would only seem right that government step in to protect investors. These scandals seemed to “wake up” government to show them that the accounting profession may need to be regulated and for them to establish some standards for accountants to adhere to and provide standards for auditing. Sarbanes-Oxley incorporated six main statutory themes, only some of which directly affect corporate governance and the exercise of fiduciary duties of both directors and officers. Those governance-specific themes relate to the independent composition of audit committees, he disclosure of the audit committee financial expert, preserving the independence of the external auditor, increased conflict-of-interest provisions prohibiting loans to officers, officer certification...

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