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How the Sarbanes Oxley Act Changed the Audit Environment

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Can you please help me with the following questions:

a. Identify how the Sarbanes-Oxley Act of 2002 changed the audit environment for auditors.
b. Identify and explain new liabilities for managements of public companies created by the Sarbanes-Oxley Act of 2002.
c. Identify five other ways in which the Private Securities Reform Act of 1995 will potentially change auditors' legal liability. Explain how each is of potential benefit to the auditor.

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https://brainmass.com/business/business-law/sarbanes-oxley-act-changed-audit-environment-332180

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See the attachment.

RESPONSE:

a. Identify how the Sarbanes-Oxley Act of 2002 changed the audit environment for auditors.

The Sarbanes-Oxley Act of 2002 was enacted to improve corporate governance and increase the transparency of financial audits. The legislation also had significant effects on the public accounting industry.For example, according to McConnell and Banks (2003), SOX impacts auditors in the following ways:

? "SARBANES-OXLEY WILL MEAN BIG CHANGES FOR BOTH auditors and the companies they audit. The former now will be required to certify a company's internal controls and will no longer be able to use certain common audit strategies. Management faces the cost of implementing the new rules.
? ACCORDING TO THE EXPOSURE DRAFT OF A NEW SAS, the understanding of internal controls required for CPAs to express an opinion on financial statements is not adequate for them to offer an opinion on the controls themselves. This means auditors will have to make changes to the audit process.
? THE AUDITOR MUST ATTEST TO MANAGEMENT'S assessment of the effectiveness of an entity's internal controls using standards the Public Company Accounting Oversight Board issues or adopts. The auditor will require management to identify, document and evaluate significant internal controls?management cannot delegate this function to the auditor.
? AUDITORS SHOULD ADVISE COMPANIES TO BEGIN the process of assessing the effectiveness of controls as early as possible. The task will be time-consuming, requiring management to determine which locations or business units to include in its evaluation.
? AUDITORS SHOULD NOT BE TOO CLOSELY INVOLVED with a company's assessment of its controls or they risk impairing their objectivity. The auditor cannot accept management's responsibility to reach conclusions on the effectiveness of the entity's controls nor can management base its assertion about the controls design and operating effectiveness on the results of the auditor's tests" (McConnell & Banks, 2003, www.journalofaccountancy.com).

See the attached article, which expands each of the above points.

Also see http://findarticles.com/p/articles/mi_m1TOS/is_1_10/ai_n25009718/.

b. Identify and explain new liabilities for managements of public companies created by the Sarbanes-Oxley Act of 2002.

The Act places a series of requirements and restrictions on executive officers and directors of companies, the most significant of which is the personal certification by the company's CEO and CFO of periodic reports filed with the SEC. This certification requirement contains two provisions, one civil and one criminal. The civil certification is subject to civil enforcement by the SEC and is immediately effective once the SEC establishes the appropriate rules (Section 302)/ For ...

Solution Summary

The solution identifies how the Sarbanes-Oxley Act of 2002 changed the audit environment for auditors.

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