The Sarbanes-Oxley Act is a law passed in the United States in America in 2002 that sets an enhanced standards for companies when reporting financial statements. The goal was to protect potential investors from investing in a company that had severely altered its financial statements to make it appear as though it was in good financial position when, realistically, it may not have been. The major elements of the act include the appropriate and ethical accounting for all financial activity within a company. Another important element of the act was the severity of punishment for fraudulent activity was increased.
In regards to auditing specifically, the Sarbanes-Oxley Act states that auditors must ensure that the financial statements of a company are in no way misleading to potential investors. The auditor is also explicitly disallowed from participating or assisting a company in altering its financial statements or reports so that it appears in better financial position than it is in reality. The auditor is also not allowed to be closely involved with the company in any way, in order to avoid potential bribery or alternative incentive. Essentially, the auditor cannot risk any part of their objectivity in reporting on the financial statements. The auditor is required to produce a completely unbiased report on the company's financial position.© BrainMass Inc. brainmass.com May 31, 2020, 4:24 pm ad1c9bdddf