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Sarbanes-Oxley's Impact on Audit and Financial Statements

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Prior to Sarbanes-Oxley, auditing companies had engaged in non-auditing functions with the corporations they audited. Although this had been cause for concern by the SEC, rules were not promulgated until mandated by Sarbanes-Oxley. Now, auditing companies are forbidden to perform non-auditing services simultaneously with auditing services. Auditing companies must now contract with the audit committee of the corporation they propose to audit, rather than with the management of the corporation, as had been the practice before. The Act also made the audit committee directly responsible for the appointment, compensation, and oversight of any work done by the auditors.
1. Will this change the nature of how an audit is done?
2. Will it prevent the auditors from engaging in practices that could undermine the intent of Sarbanes-Oxley?
3.Will the added layer of requiring the CEO and CFO to certify the work of the auditing committee helps to bring back the balance that was lost by commingling accounting practices and auditing practices?

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1. Will this change the nature of how an audit is done?

Not really. The audit work is based on the assessed risks and these are based on the features of the business (inherent risk) and the controls (control risk). SOX may improve the controls since they are required to now be documented and tested and therefore reduce the substantive ...

Solution Summary

Your discussion is 230 words and a reference and explains how SOX did not really address all of these issues.