The Sarbanes-Oxley Act

Accounting: Topic 5
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Introduction
The Sarbanes-Oxley Act oversees the Public Company Accounting Oversight Board (PCAOB), and approves the budged for the commission. The PCAOB in turn oversees the audits and auditors of financial statements for the U.S public companies. Other than this, the board has the authority to oversee the financial reports for the SEC register brokers and dealers. The requirements of SOX focus on strengthening the accounting standards including auditor independence and corporate responsibility with the aim of improving governance. Additionally, the Dodd- Frank Act, was undertaken with the aim of improving investor protection and ensuring the sustainability of the U.S financial system.
Requirements of Sarbanes-Oxley Act
The Sarbanes-Oxley Act (SOX) was adopted in 2002 with the aim of improving disclosures of financial information based on the accuracy and reliability of the disclosures. This would help to inform investors who rely on corporate information to make decisions, while ensuring compliance with the standards. Despite attempts towards self-regulation the accounting profession has been dogged by accounting malpractice (SOX, 2002). The Sarbanes-Oxley Act has been applied to strengthen financial reporting because of the structural weakness in financial reporting including the conduct of independent audits in public companies.
One of the requirements of the Sarbanes-Oxley Act focuses on auditor independence, where auditors are prohibited from offering non audit services when their clients are public enterprises (SOX, 2002). The rotation of auditors is mainly undertaken for the lead and review partners. This is an issue related to independence since accountants may perform the same takes for consecutive years. To further ensure there is independence is the requirement that there be rotation of auditors. Other than this is the provision preventing the conflicts of interests among auditors, where registered firms are not to perform audit services if the managements and senior employees had previously been employed by the client in any capacity related to audit.
Corporate responsibility is another aspect covered by the SOX highlighting the required audit committee standards and the corporate governance rules. One of the major changes is the requirement that registered enterprises to have audit committees comprising of independent directors, with external auditor required to report directly to the audit committee. Besides establishing internal accounting control, there are audit committees to establish mechanisms to handle whistleblower information related to questionable accounting practice and auditing matters (Richman & Richman, 2012). Corporate responsibility extends to the top management requiring that the CEO and the principal accounting or financial officers to certify financial reports. Corporate responsibly and whistleblower functions further strengthen the corporate governance of public firms.
The Dodd Frank – broadened the protection provided to whistleblowers, as it focuses on both public and private companies. Employers are not to retaliate against employees who disclose information for protections offered under the SOX...