Primer on Sarbanes-Oxley

Primer on Sarbanes-Oxley

Introduction

The PCAOB is comprised of ?ve members who are “prominent individuals of integrity and reputation who have demonstrated a commitment to the interests of investors and the public.” Board members are selected by the Securities and Exchange Commission (SEC), in consultation with the treasury secretary and the chairman of the Federal Reserve Board. To ensure the Board's independence from the accounting industry, the Act requires that three of the ?ve board members must be individuals who are not and never have been certi?ed public accountants (CPAs). In addition, the Chair, if a CPA, may not have practiced for the ?ve years preceding his or her appointment (Contos 2006).

The PCAOB is charged with the registration of all public accounting ?rms that prepare or issue audit reports for public companies or participate in the preparation or issuance of such reports (any such ?rm to be referred to as a “registered ?rm”). In addition, the PCAOB is charged with establishing auditing and related attestation standards, quality control standards and ethics standards for registered ?rms in preparing and issuing audit reports. The Act directs the PCAOB to adopt rules that require each registered ?rm to maintain audit workpapers for a minimum of seven years, to provide for a concurrent partner review of each audit report, and to provide an attestation as to the audited client's internal controls (Stillman 2004).

Discussion

Sarbanes-Oxley for Dummies follows the standard "For Dummies" approach of presenting complex material in a practical, easy-to-read style. This book is intended to help firms comply with Sarbanes-Oxley, understand its key provisions, and learn best practices for compliance. Welytok does an excellent job of covering Sarbanes-Oxley's implications for CPAs, CEOs, and corporate board members. Topics are organized into sections and subchapters so readers can easily find an area of interest or use the book as a reference tool. Each topic is treated independently, so the reader does not have to review previous chapters to understand the material.

The first section describes the political impetus for the act and provides a concise overview of each section of Sarbanes-Oxley and its intended purpose. This section would be a helpful resource for students who need a general understanding of securities laws as it reviews 70 years of securities law and places Sarbanes-Oxley in the appropriate context. The section also includes a primer on financial statements and disclosures, and introduces the reader to sources of information to assist in understanding and investigating financial reports. The second section focuses on those who are affected by Sarbanes-Oxley, namely auditors, the audit committee, the board of directors, and management. The role of the PCAOB and its effect on the accounting profession are also discussed (Pennsylvania Bar Institute 2002).

There is an overview of the role of the audit committee, how to create an effective audit committee, and how members should interface with external auditors. The chapter on the board of directors discusses the required majority of independence within the board, what a director should do, and Sarbanes-Oxley-mandated prohibited payments and ...