Academic journal article Journal of Accountancy

Reform Measures Achieve Fruition

Academic journal article Journal of Accountancy

Reform Measures Achieve Fruition

Article excerpt

Certain provisions of the Sarbanes-Oxley Act became required practice in January when the SEC released as final four rules governing various aspects of accounting, financial reporting and auditing. As mandated by the act, the commission's new rules address auditor independence, off-balance-sheet arrangements, audit records retention and pro forma financial reporting--all focal points of Congress's efforts to stem the recent tide of corporate failures.

The auditor independence rule supersedes earlier provisions governing nonaudit services (www.see.gov/rules/final/33-8183.htm). It forbids auditors to provide nonaudit services such as financial information systems design and implementation, appraisal and valuation, actuarial functions and internal audit outsourcing to their audit clients unless it is reasonable to conclude the firm will not examine the results of such work when it audits the client's financial statements. The rule also requires firms to choose between keeping their clients' books and auditing them. Other provisions prevent auditors from performing for audit clients any management or human resources services; broker-dealer, investment advisory or investment banking services; or legal or expert services unrelated to the audit.

Particular aspects of the rule pertain to audit committee preapproval of both audit and nonaudit services before the auditor renders them; disclosure to investors of the nonaudit services the auditor provides, as well as the fees paid for all services; audit partner rotation and compensation; the definition of the term audit partner; how long an auditor must wait before overseeing financial reporting at a public company he or she had audited; communication between the auditor and the audit committee; and the impact on foreign accounting firms or companies. …

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