AUDITING

Auditing

Auditing

Part A.

Discuss and explain these reforms (i.e. what they were and what they entailed)

Reforms always come after very serious course of events, and this era of early 2000s was the one were even the government was forced to propose certain measure in order to avoid corporate failures. In early 2000's, due to major corporate failures, certain reforms were introduced to ensure financial reporting and auditing standards. The main failures which led to such a step were the bankruptcies of Enron and World-Com, followed by the downfall of Arthur Andersen LLP. All these collapses were of such large scales that it forced congress to react. All these course of events and the reaction of congress led to the formation of Sarbanes-Oxley Act of 2002. This Act includes 11 titles, dealing with criminal penalties to corporate board responsibilities. According to the Act, the Securities and Exchange Commission (SEC) has to put into practice, the rulings of this act in compliance with the law. Now we will be discussing the Act in detail along with its every title.

The first title of this Act is Public company accounting oversight board. This title includes the establishment and administrative provision, inspection of registered public accounting firms, registration with the board and auditing quality control, and independence standards and rules. This title also incorporates investigation and discipline proceedings along with accounting standards and funding policies. This title primarily explains lays down the foundation of the board which will look into all issues for public companies, relating to audit procedures and quality control. This title does not only talk about the policies for audit companies, in fact this title also enforces the inspection of all the auditing firms which have more than 100 issuers, and also publicly publish the reports so that businesses and other stakeholders can get a clear idea about the firm. This act also enforces the implementation of proper accounting standards and the Act gives right to inspect only local, but also all the foreign auditing firms, as it has been observed in past that these large auditing firms have also made numerous mistakes.

The second title of the Act is Auditor Independence, and it includes services outside the scope of professional auditors, auditor's report to audit committees, conforming amendments, audit partner rotation, conflict of interest and study of mandatory rotation of registered public accounting firms. This act basically deals with polices that an auditor of an auditing firm has to follow. It does not only include the services they usually offer, instead this Act also gives clear guideline for the services which are usually out of their domain. Another important aspect of his Act is the conflict of interest where guidelines are given in order to avoid or cope up with such situation.

The third title of the Act is Corporate Responsibility, and it includes sections for public company audit committees, corporate responsibility for financial reports and improper influence on conduct of audits. In this title, there are primarily two main ...