The Sarbanes-Oxley Act 2012 Essay

Submitted By wswar
Words: 565
Pages: 3

The Sarbanes-Oxley Act was passed in July 2002, while the investor were losing their trust on the market and public-company. The major goal of SOX, in my opinion, was trying to restore fiduciary duty and investor confidence for whole market, after some huge fraud scandals, such as Enron and WorldCom. Basically, we can divide principal components of SOX into three parts: enhancing the audit independence and oversight of public company audits, strengthening audit committees and corporate governance, and enhancing transparency, executive accountability and investor protection (Ey 2012).
Firstly, SOX enhances the audit independence and oversight of public company audits. The Sarbanes-Oxley Act sets up several standards for restricting audit performance and non-audit services, and they also established the PCAOB for setting, enforcing audit standards. According to the PCAOB government website, "the PCAOB is a non-profit corporation established by Congress to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports.” PCAOB, one of the most important influence made by the Sarbanes-Oxley Act, is the only authority for inspection, enforcement and setting audit standards authority. PCAOB’s major job is monitoring the audit of public companies, and oversee the external and internal auditing. Additionally, SOX prohibited audit firms to operate most audit non-audit services performed by the incumbent auditor, because SOX thought the personal relationship which built in the non-audit services may influence the audit services. This relationship may become a threat that will diminish auditor’s intent to practice deviations from the standard (DeFond 2005).
Secondly, SOX strengthens audit committees and corporate governance. Based on the SOX, “all listed companies should have audit committee and independent of management, which would be directly responsible for oversight of the external auditor. (Ey 2012)” They even required the limit times the audit committee should meet. This rule directly extended the responsibility of public company for external audit. External audit is not only the responsible for the auditor, the company also need prepare and do their own job for external audit. Additionally, SOX added more requirement for the internal control of financial reporting. Public company should have effectively internal control, and external auditor will offer an evaluation for company’s internal…