Due to the prevalence of unethical behavior, fraudulent activity and massive business failures in 2002, Sarbanes Oxley Act enactment is the most significant legislation affecting the accounting profession since 1934. SOX came 9 months after the announcements of Enron problems and is applicable to issuers as defined in the SEC Act of 1934 affecting more than fifteen thousand public companies. As a result, companies with more than $1MM in total assets and at least 500 shareholders are required to file periodic reports with the SEC. This created Public Company Accounting Oversight Board (PCAOB) funded by accounting firms and registrants.
PCAOB requires 5 memebers to be full-time and independent out of which 2 must be CPAs. It is responsible for registering all auditors or public companies, conducting inspections of and discipline of those auditors, enforcing compliance with SEC act of 1934 and establishes auditing, quality control, ethics, independence and other standards relating to the preparations. PCAOB mandate is to establish auditing standards to require workpaper retention for 5 and 7 years. CPA firms utilize a second partner review and approval of audit reports. This also prohibits audit firms to provide non-audit services to clients. Moreover, audit committees must approve of all services to be provided by the accounting firms.
- How the Sarbanes-Oxley Act of 2002 Impacts the Accounting Profession
- Full Text of the Sarbanes-Oxley Act
- Summary and Caveats of Sarbanes-Oxley Act
- Additional Aspects of Sarbanes-Oxley Act Explained
- Non-Audit Service Restrictions of the Sarbanes-Oxley Act
- PCAOB Registration Requirement
- Tippie College Educational Resources