Sarbanes-Oxley Act in Tackling Corporate Scandals and Frauds

Sarbanes-Oxley Act of 2002

The accounting profession was entangled in the accounting and business scandals whirlwind that rocked the American economy in 2002. To recover investor confidence in financial data, the Sarbanes-Oxley Act designed a new Oversight Board for public Company accounting with the power to set requirements for auditors of public organizations, thus bringing to an end a century of export control of audit. We determine that this reform results in an important loss of the professional position of auditors, which also affects other categories in the wider accounting career.

Significance of the Act

Between 2001 and 2002, a sequence of accounting frauds was discovered at major organizations. Consequently, the bubble burst sending investor confidence and stock prices are plummeting. The part of auditors in these frauds led to a deepening issue with the potency of professional self-regulation. High-profile business problems translating into a media fixation of Enron questioned the potency of the profession's self-regulatory process and the potency of the audit to maintain the public trust in the capital marketplaces. Legislation to deal with the disadvantages in financial reporting was advancing in the legislature, and the unexpected exposure and failure of WorldCom assured instant congressional action. The then U.S. president, Bush endorsed into law the Sarbanes-Oxley Act of 2002. It has been among the significant legislation affecting the accounting career since 1933 (Warren, 2011).

The Sarbanes-Oxley Act confiscated the capability of auditors to understand their part in society. In fact, when the PCAOB implemented the professional and auditing requirements that had been designed for many years by the AICPA, and that choice was accepted by the SEC, the auditing requirements became government law rather than a set of practices within the profession. The changes brought by the Sarbanes-Oxley act lay open the accounting career to improve government management through the PCAOB takeover of establishing audit requirements, professional reviews, and correcting expert practice associated with offerings in public securities (Fletcher & Plette, 2008). It symbolizes a serious risk to the expert position of auditors because independence from the power of others over their work is one of the interpreting features of careers. The management is the core to the sustaining perception that expert activities are useful and are the foundation for the work market protection or government subsidized service monopoly.

Effects on auditing procedures and financial reporting

The SOX needs a thorough second associate evaluation and acceptance of every audit record for SEC filers. This type of evaluation has been a need for CPA ?rms from the SEC exercise area for a period. In the SEC practice section, membership is needed of all CPA ?rms that audit SEC ?lters. Whether the needed second associate evaluation under SOX will be more extensive and effective than the present SEC practice requirements is difficult to evaluate even on a priori foundation. The SOX also needs that management represents about the potency of its inner control framework. Moreover, the auditor will be needed to do a separate and complete review of the inner control representations made by management. Any significant weak points in management's inner control framework must be recorded in this individual review on inner control.

The impact of the above changes on the chances of audit failure seems to be minimal. An evaluation of the traditional audit failures, which have happened in previous times suggest that second associate opinions were needed and considered routine review techniques for companies needed to ?le with the SEC. There is no sign that these second associate opinions provided any assistance in avoiding audit failure. In the same way, the traditional audit failures of previous times cannot be linked with deficiencies in inner management. The best inner management system can easily be rendered worthless by top management frauds and collusion. The underlying causes of failed audits are more correctly linked with gross offenses of audit techniques rather than two deficiencies in management's inner control framework (Fletcher & Plette, 2008).

While taking into account the regulating factors of the SOA, I was hit by the precautionary characteristic of this Act. PCAOB examinations of public auditors, development and administration of strict audit requirements and the powerful separation between the consulting and auditing functions of accounting organizations all functions to deter the accounting-related business meltdowns experienced by companies like Enron. It seems that all control can be separated into two categories: precautionary or remedial Workers' settlement is an example of remedial government control. It provides a solution after the damage has happened. This was an enhancement over the past scenario in which the harmed employee was not likely to be able to restore at law for his/her damages. Workers' settlement, with its provision of no-fault, assured that a harmed employee would be completely protected with respect to healthcare costs and would get a limited salary loss settlement, so long as the damage occurred out of the job (De & Argosy University, 2006).