Acc 564 Assignment 1
1071 words 5 pagesAuditing I | Sarbanes Oxley Act | Assignment 1 | | Rachael Lantz | 8/15/2012 |
Since the financial crisis investors have become less confident in the companies within the market. In order to restore confidence within the market and the audits of their financial statements Senator Sarbanes and Representative Oxley created the legislation known as the Sarbanes Oxley Act which came into effect in 2002. The legislation created major regulations on company financial reporting and the regulation of it. Forcing management to be accountable for the financial reporting and internal controls within their company and requiring the audit committees to report on their opinion of the company’s internal processes. (Soxlaw.com)
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The PCAOB helps to protect the investors from fraud by regulating auditor’s requirements within the Sarbanes Oxley Act (pcaobus.org).
PCAOB Standard 2 requires that the audit report on internal control over financial reporting under Sarbanes-Oxley include the auditor’s opinion as to whether management’s assessment of the design and operating effectiveness of internal control over financial reporting is fairly stated in all material respects. Management must document the design of controls, including all five control components and also the results of its testing and evaluation. The types of information gathered by management to assess and document internal control effectiveness can take many forms, including policy manuals, flowcharts, narratives, documents, questionnaires and other forms that are in either paper or electronic formats. The process to develop the auditor’s opinion involves both evaluating management’s assessment process and arriving at the auditor’s independent assessment of the internal controls’ design and operating effectiveness (Arens, 2010) With the passage of the act in 2002 there are now laws governing the relationship between corporations and the auditing firms, the requirement of auditors to be rotated on a regular basis, and the enforcement and regulation of internal