SARBANES OXLEY ACT

Sarbanes Oxley Act

Sarbanes Oxley Act

Introduction to Sarbanes Oxley Act

The SOX, shorthand for Sarbanes-Oxley Act is an American law that has been issued in 2002 in the United States to give a firm response to repeated financial scandals that had occurred in the immediately preceding years. The investor confidence in financial information issued by the companies was greatly reduced, with negative effects on the efficiency of capital markets. Frightened by the prolonged economic impact of this situation had been caused, the U.S. authorities decided that the best solution for restoring the confidence of investors going to tighten the controls on businesses. In fact, we see that the SOX harden quite the controls that should exist in an enterprise for the formulation of annual accounts and other financial reports need to issue.

The main innovations introduced by the new law are: Title 1 of SOX regulates the establishment and functioning of an organ to monitor the activity of audit firms (Public accounting FIRMS). It is clear that the legislators intended to more closely monitor the activities of auditing firms. The title 2 of SOX provides some important limitations on the activities of auditing firms. This establishes, inter alia, the general principle upon which are not allowed to audit firms provide to their audit clients other services other than auditing of annual accounts. It also establishes the obligation of rotation of the engagement partner responsible for every 5 years. Very interesting is the so-called period of "cooling-off" based on which an audit firm cannot offer audit services to a company where the CEO or Manager, CFO, Controller, Managing Director and Chief Accounting Officer have been members of the audit team the previous year. (Ernst & Young, 2005)

The title 3 and 4 contain the title of most powerful and conflicting news of the whole law, and will need to be analyzed in depth. The title 3 introduces the new concept of "corporate responsibility", while the title 4 contains important new subject of financial reporting. We will further analyze the content of Section 2, which aims to strengthen the independence of auditors. First, section 201 sets new limits on ancillary services an audit firm can provide to their audit clients. 8 specifically identify services that are incompatible with the conduct of an audit. Thus, if a firm has the task of auditing the annual accounts of a client may not:

Provide services for keeping accounts and other activities related to the preparation of annual accounts;

Develop and / or implementing financial reporting systems;

Actuarial services;

Internal audit services;

General management services and human resources;

Brokerage services, investment consulting and / or investment banking;

Legal services;

Any other service that the agency supervising the auditing firms determine.

This list of services compatible with audit services is exhaustive in the sense that all other possible services that an audit firm can provide to its customers if they are compatible with audit services, including tax consulting services, with only requirement that the provision ...