The Impact of Sarbanes-Oxley Act on Non-U.S. Accounting Firms

By Hsu, Kathy H. Y.; Cheek, Ronald G. et al. | Journal of International Business Research, January 2005 | Go to article overview

The Impact of Sarbanes-Oxley Act on Non-U.S. Accounting Firms


Hsu, Kathy H. Y., Cheek, Ronald G., Etheridge, Harlan L., Journal of International Business Research


ABSTRACT

The Sarbanes-Oxley (Public Company Accounting Reform and Investor Protection) Act of 2002 is the most far reaching legislation to reform American business practices in recent time. This legislation changes the business landscape in the U.S. by creating a new oversight body, the Public Company Accounting Oversight Board, to oversee the corporate governance, accounting and auditing practices of all publicly held companies in the U.S. and to implement regulatory requirements for better corporate governance, accounting, and auditing practices.

Many of these new regulatory changes affect not only U.S. corporations and the U.S. accounting and auditing professions, but also have a far reaching impact on all of the non-U.S. corporations that seek capital in the U.S. security markets as well as those non-U. S. accounting/ auditing firms that service these foreign entities. While the intention of the Sarbanes-Oxley Act is to protect U.S. investors in general and the legitimacy of an U.S. oversight body to regulate publicly held companies in the U.S. is not being challenged, some of the specific requirements within the Act pose challenges for non-U.S. companies that are also subject to their home country's regulatory requirements that may be substantially different or in conflict with the requirements of this new act. Strong opposition also has been expressed by non-U.S. accounting firms that are fearful that implementation of this new Act may place them in a disadvantageous position compared to their U.S. counterparts and change the international market for auditing services. This study reviews the specific requirements of the Sarbanes-Oxley Act that are applicable to non-U.S. accounting firms and provides insight on how these requirements affect the global accounting and audit market.

INTRODUCTION

On July 30, 2002, President Bush signed the Sarbanes-Oxley Act of 2002 into law. This Act not only is applicable to all companies listed in the U.S., both domestic and foreign, Section 106 of the Act also subjects any non-U.S. accounting firms who "prepare or furnish" an audit report involving U.S. registrants or any foreign accounting firms whose audit opinion is relied upon by a registered U.S. accounting firm to be subject to the authority of the Act. This new Act not only imposes registration requirements with an U.S. oversight body on foreign accounting/auditing firms, it also redefines many aspects of accounting and auditing practices for foreign accounting firms that may or may not be practically feasible or legally possible in their home countries.

The main areas of the Sarbanes-Oxley Act that affect the accounting profession in general include (1) defining new roles for the corporate audit committee and its relationship with corporate external auditor in that auditors will report to and be overseen by a company's audit committee, not management, and the requirement of audit committees to pre-approve of all services (both audit and non-audit services) provided by its auditor, and (2) auditor independence requirements including audit partner rotation and employment restriction, specification of consulting services that are "unlawful" if provided to a publicly held company by its auditor, as well as (3) the requirement that every audit report attest to the assessment made by management of the company's internal control structures, including a specific notation about any significant defects or material noncompliance found. There are also specific provisions within the Act regarding preservation of audit or review working papers and the requirement of management assessment of internal controls.

As the U.S. accounting profession focuses on adapting to this new era of change, foreign accounting firms have expressed grave concerns that the new U.S. legislation may create an "unlevel playing field" that favors U.S. accounting firms over non-U.S. accounting firms because the non-U. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The Impact of Sarbanes-Oxley Act on Non-U.S. Accounting Firms
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.