Sarbanes Oxley

1. Created by SOX! Registers, inspects, and disciplines American and foreign accounting firms that audit public companies accessing American Capital Markets. 2. Establishes or supervises the establishment of accounting, auditing, and ethical standards.
SOX forbids auditors of public firms from providing certain non-audit consulting services

1. Register public accounting firms that prepare audit reports for issuers 2. Establish and/or adopt auditing, quality control, ethics, independence, and other standards 3. Conduct inspections of registered public accounting firms 4. Conduct investigations and disciplinary proceedings and impose appropriate sanctions on auditors and audit firms.(list on pg 19) .

Even though PCAOB members are appointed by SEC, not the President; they are still considered to be under Presidential control.

Lack of confidence in financial reporting and the role of the independent auditor due to major frauds, such as Enron, WorldCom, etc. prompted action by Congress

Created by US Senator Paul Sarbanes (D-Maryland) and US Congressman Michael Oxley (R-Ohio)

Most dynamic securities legislation since the New Deal

July 30,2002

Enron’s bankruptcyWorldCom overstated earnings by $11 billion and wiped out $180 billion in shareholder wealthHealthSouth overstated earnings by $4.6 billion

In response to the Arthur Anderson, Enron and WorldCom debacle, the Sarbanes-Oxley Act seeks to:Restore the public confidence in both public accounting and publicly traded securitiesAssure ethical business practices through heightened levels of executive awareness and accountability

Failure of self regulation of the auditing profession that allowed auditors to perform inferior audits and become lax in oversight and peer review due to conflicts of interests.

Grants SEC oversight and enforcement authority over the PCAOB. SEC can amend any rules issued by PCAOB, and may review any sanction that PCAOB imposes on public accounting firms and their auditors.

Creation of the Public Company Oversight Board (the Board):Created as a non-profit organization, the Board will oversee audits of public companies; it is under the authority of the SEC but above other professional accounting organizations such as the AICPAThe Board is comprised of 5 members (appointees), with a maximum of two CPA’s

Section 101 --Conduct inspections and investigationsSection 102 --mandatory registration of public accounting firms Sections 103–Adopt auditing standardsSection 105 – Coordinate and conduct discipline proceedings with the SEC

Provides mandatory registration of public accounting firms and makes it unlawful for any person not registered to participate in any preparation or issuance of any public company’s audit report. Required disclosures include information relating to criminal, civil, or disciplinary proceedings against the firm or auditors in connection with any audit report.

PCAOB must establish by rule auditing, quality control, and ethics standards as necessary or appropriate in the public interest or to otherwise protect investors. PCAOB is authorized to adopt standards issued by professional groups of accountants, such as the AICPA or FASB, but is ordered to retain full authority to modify, supplement, revise, amend, or repeal those standards. “The buck stops with the PCAOB”