Three U.S. Federal laws which impact it auditors
What Is the Sarbanes-Oxley (SOX) Act of 2002?The Sarbanes-Oxley Act of 2002 is a law the U.S. Congress passed on July 30 of that year to help protect investors from fraudulent financial reporting by corporations. Also known as the SOX Act of 2002, it mandated strict reforms to existing securities regulations and imposed tough new penalties on lawbreakers. Show
The Sarbanes-Oxley Act of 2002 came in response to financial scandals in the early 2000s involving publicly traded companies such as Enron Corporation, Tyco International plc, and WorldCom. The high-profile frauds shook investor confidence in the trustworthiness of corporate financial statements and led many to demand an overhaul of decades-old regulatory standards. Key Takeaways
The act took its name from its two sponsors—Sen. Paul S. Sarbanes (D-Md.) and Rep. Michael G. Oxley (R-Ohio). Sarbanes-Oxley Act Of 2002 – SOXUnderstanding the Sarbanes-Oxley (SOX) ActThe rules and enforcement policies outlined in the Sarbanes-Oxley Act of 2002 amended or supplemented existing laws dealing with security regulation, including the Securities Exchange Act of 1934 and other laws enforced by the Securities and Exchange Commission (SEC). The new law set out reforms and additions in four principal areas:
Major Provisions of the Sarbanes-Oxley (SOX) Act of 2002The Sarbanes-Oxley Act of 2002 is a complex and lengthy piece of legislation. Three of its key provisions are commonly referred to by their section numbers: Section 302, Section 404, and Section 802. Because of the Sarbanes-Oxley Act of 2002, corporate officers who knowingly certify false financial statements can go to prison. Section 302 of the SOX Act of 2002 mandates that senior corporate officers personally certify in writing that the company's financial statements comply with SEC disclosure requirements and "fairly present in all material respects the financial condition and results of operations of the issuer" at the time of the financial report. Officers who sign off on financial statements that they know to be inaccurate are subject to criminal penalties, including prison terms. Section 404 of the SOX Act of 2002 requires that management and auditors establish internal controls and reporting methods to ensure the adequacy of those controls. Some critics of the law have complained that the requirements in Section 404 can have a negative impact on publicly traded companies because it's often expensive to establish and maintain the necessary internal controls. Section 802 of the SOX Act of 2002 contains the three rules that affect recordkeeping. The first deals with destruction and falsification of records. The second strictly defines the retention period for storing records. The third rule outlines the specific business records that companies need to store, which includes electronic communications. Besides the financial side of a business, such as audits, accuracy, and controls, the SOX Act of 2002 also outlines requirements for information technology (IT) departments regarding electronic records. The act does not specify a set of business practices in this regard but instead defines which company records need to be kept on file and for how long. The standards outlined in the SOX Act of 2002 do not specify how a business should store its records, just that it's the company IT department's responsibility to store them. Member OrganizationsMember Organization Associate Association of International Certified Professional Accountants–AICPA Legal and Regulatory Environment
Adoption of International Standards
DisclaimerIFAC bears no responsibility for the information provided in the SMO Action Plans prepared by IFAC member organizations. Please see our full Disclaimer for additional information. What are the impacts of IT in auditing?Information technology affects the reduction of audit risk through electronic data processing and electronic auditing, which helps auditors reduce the likelihood of errors in audit work and increase the probability of discovery, which in turn leads to a reduction in audit risk.
What are the three main sets of auditing standards?The generally accepted auditing standards (GAAS) are contained within three sections that cover general standards, fieldwork, and reporting.
What rules do auditors have to follow?General Standards 1. The auditor must have adequate technical training and proficiency to perform the audit. 2. The auditor must maintain independence in mental attitude in all matters relating to the audit.
Who regulates auditors in USA?One of the powers Congress gave the SEC is the statutory authority to establish accounting standards for the private sector in the United States.
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