From the e-Activity, recommend how the SOX framework can ensure reliable and complete financial information and how accounting professionals have benefited from its use. Provide support for your response.
The Sarbanes-Oxley Act itself is organized into eleven sections, but sections 302, 404, 401, 409, 802 and 906 are the most important in terms of compliance. Section 404 seems to cause the most difficulties for compliance. More specifically, Sarbanes-Oxley established new accountability standards for corporate boards and auditors, established a Public Company Accounting Oversight Board (PCAOB) under the Security and Exchange Commission (SEC), and specified civil and criminal penalties for noncompliance.
All applicable companies must establish a financial accounting framework that can generate financial reports that are ...view middle of the document...
Evaluate how the SOX has reinforced investorsâ€™ and creditorsâ€™ confidence in companies and how these individuals can take steps to verify the accuracy of the financial statements of potential investments or loans. Provide support for your rationale.
The SOX has reinforced investors and creditors confidence in many ways.
Audit quality has been improved by stronger alignment of independent auditors, independent audit committees, independent audit oversight authorities, and public company shareholders. In a 2008 audit committee survey reported by the Center for Audit quality, 90 percent of audit committee members surveyed said that "they work more closely with the independent auditor" post-SOX.
Audit quality has improved because of PCAOB inspections and standard setting. As of December 31, 2011, over 2,000 audit firms from more than 80 countries were registered with the PCAOB. In 2011, the organization conducted inspections of 213 registered audit firms, and initiated an interim inspection program for broker-dealers.
More audit committees have financial experts. In 2003, only a small number of audit committee members were financial experts. Today, almost half of all audit committee members are identified through proxy statement disclosure as meeting the definition of a financial expert.
Companies that comply with all of the internal control provisions in SOX are less likely to issue financial restatements. A November 2009 study published by Audit Analytics found the rate of financial restatements was 46 percent higher for companies that did not comply with all of the SOX internal control provisions.
Corporate governance is stronger. Prior to SOX, the process for the selection and assessment of the independent auditor typically was controlled by management. Audit committees now play an essential role in corporate governance framework by overseeing the quality and integrity of company financial statements