How the Sarbanes-Oxley Act of 2002 Impacts the Accounting Profession
Sarbanes-Oxley Act of 2002 signed by Bush certainly impacts the accounting profession in the USA. The first thing I learned from gathering the information about this act is that a new financial authority is to be formed. The so called “Public Company accounting oversight board” oversees the financial activities of individual companies as well as the independent auditors regardless of whether or not they work for a big five firm or have their own practice, and is itself overseen by the SEC.
Here I would like to note the strange requirements for the Board member, two of which must be CPAs and the other 3 cannot be CPAs. What is also odd is the fact that the board chair person is supposed to have been a CPA in the past yet was supposed not to practice accounting for the previous 5 years.
The funding is supposed to be mandatory for the audit firms, while the regulatory board will certainly oversee the accounting standards and proposals adopted by other authorities or organizations.
This Public Company accounting oversight board is supposed to oversee the operations companies and primarily the accounting firms that might cause some potential fraud. The board is supposed to consult with the SEC on various issues and if it starts to find something suspicious it is supposed to forward it to the SEC and if needed to the US department of justice.
The Public Company accounting oversight board is also given indirect authority over international companies that want to do business in the USA and therefore get under influence of the board. If a company wants to register in the USA or uses a foreign accounting firm it must adhere to all Board recommendations.
The rules of the Board appear to be very strict with the accounting companies being obliged to seek approval on most of their activity with the board. The federal law establishes rather tough penalties for the US auditors who try to commit a crime or cook the books. I personally remember well that if an auditor is charged with destroying the financial documents related to any investigation he/she can be charged for up to 20 years in prison and simple failure to keep the proper books might result in a prison sentence of up to 10 years.
In conclusion I would like to note that the board also requires the companies to have another (second partner) accounting firm to review whatever was reviewed by the audit firm. Also the corporate management is required to assess and report the corporate internal control strengths and weaknesses with the CPA firm also presenting its own version of this control statement.