Ch2 - EOC #2 Solutions 2-1 During the late 1990s and early...

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EOC #2 Solutions 2-1 During the late 1990s and early 2000s, accounting firms aggressively sought opportunities to expand their business in nonaudit services such as consulting. This expansion from their core audit practice, combined with allegations of auditors refusing to challenge management’s actions, resulted in conflict between regulators and the accounting profession. Subsequent financial fiascos such as those at Enron, WorldCom, Tyco, and many others, caused investors to doubt the fundamental integrity of the financial reporting system. Under pressure to restore the public’s confidence, Congress passed the Sarbanes- Oxley Act and created the PCAOB in 2002. 2-2 The accounting profession’s expansion into new areas, combined with changes in the overall business environment, resulted in new regulations and guidelines. The scandals of the late 1990s and early 2000s brought into the question the profession’s ability to self- regulate, resulting in new legislation. While these changes have caused pain and turmoil, they highlight the essential importance of auditing in our economic system. Ultimately, the “back to basics” emphasis, along with auditing firms’ renewed focus on thorough and effective financial statement audits, will likely prove healthy for the U.S. financial reporting system and for the profession. Further, somewhat ironically, the SOX-mandated
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This note was uploaded on 11/02/2011 for the course ACCOUNTING ACC511 taught by Professor Awe during the Spring '11 term at Prince George's Community College, Largo.

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Ch2 - EOC #2 Solutions 2-1 During the late 1990s and early...

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