Understanding Sarbanes-Oxley, What is different after July 2013

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What's been your biggest challenge with meeting SOX compliance rules?

The rationale behind the Sarbanes-Oxley Act is best reflected by the events in the years preceding its enactment. In doing so, the SEC can prevent information asymmetry where one party with superior information in a transaction has the ability to take advantage of the other party with less or inferior information.

Although the PCAOB has reiterated in every press release and board meeting that its goal is to protect the average investor, many criticize that even after twelve years, the PCAOB has yet to make substantial improvements. As the watchdog of corporate accounting, the PCAOB has the power to rewrite audit standards and to inspect and issue reports on registered audit firms.

Yet, critics point out that the PCAOB has been slow to act, veiled in secrecy and weak or weak-willed. Yet, it is still disconcerting to see that the number of deficiencies being identified has not decreased, since financial statements represent the main source of information for investors. Clearly, company management and other corporate insiders have more information available to them than the average U. Securities regulations, like SOX, attempt to limit the ways in which corporate insiders can capitalize on such information, but insider trading is still prevalent within the marketplace.

Sarbanes-Oxley Act and the Public Company Accounting Oversight Board's First Eleven Years

Only time will tell if SOX and the PCAOB are in fact making positive changes to the marketplace, and in terms of investor confidence, the current economic regime appears far from perfect. Investors must be able to not only trust the information that companies are disclosing, but must also have access to a sufficient amount of information.

If not enough information is being disseminated into the market, than addressing the quality of the disclosures being made only addresses one aspect of the information asymmetry. Disclosures must not only be credible but also complete in order to give average investors a fair chance in the marketplace.

The Sarbanes-Oxley Act and its Effect on Investor Confidence March 24, Do increased transparency and disclosure truly benefit the average, individual investor to correct information asymmetry? Background The rationale behind the Sarbanes-Oxley Act is best reflected by the events in the years preceding its enactment. Additional Blog Posts. Place-Based Fiscal Policies. Last modified on Jun.

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The Effects of tje Sarbanes-Oxley Act of

In fact, in many cases the failure is in the documentation rather than the actual work performed. For example, the audit working papers do not sufficiently explain why they decided that a certain area or control was low or high risk. The Staff Alert is a good read for practitioners charged with SOX compliance for their organization as well as mandatory reading for external auditors. The Staff Alert covers a lot of ground and clarifies a number of key points.

For example in the order in which they appear in the Alert :.

Sarbanes–Oxley Act

I have been writing about the need for the audit committee and its members to step up their oversight of the external auditor. The Staff Alert closes with advice for them:. In particular, audit committees may want to inquire about the involvement and focus by senior members of the firm on these matters. I am interested in hearing whether any part of this is new or challenging to you.


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Page Image. Page Content. The Staff Alert says AS12 "establishes a process for identifying and assessing risks of material misstatement in an audit, which applies to audits of internal control and audits of financial statements. The risk assessment procedures required by Auditing Standard No. The auditing standard also sets forth a process for assessing identified risks, which includes determining the likely sources of potential misstatement and evaluating the types of misstatements that could result from the risks; the accounts, disclosures, and assertions that could be affected; and the likelihood and magnitude of potential misstatements.

Returns are, for many organizations, not a potential source of error that would be material to the financial statements; as a result, there may not be a need to identify key controls over returns.