AC555 project - The Challenges and Effects of the...

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The Challenges and Effects of the Sarbanes-Oxley Act on the Internal Audit Profession Prepared by: Keller Graduate School December 16, 2010 INTRODUCTION
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As a result of the fraud committed by Arthur Anderson and Enron many changes were instated within the auditing world. Employees of Arthur Anderson had become so close with the employees of their client that they were almost indistinguishable from one another. “Many of Andersen and Enron's top number crunchers took annual golf vacations together, making friendly bets on each round. They went on ski outings, schussing down the slopes together. Others would sneak away from the office for Astros games at Enron Field and take turns buying margaritas at Mama Ninfa's, a local Mexican restaurant chain. They played fantasy football against each other over the office computers.” ( CHICAGO TRIBUNE ) The blurred line between the two firms resulted in Anderson not performing a proper audit on Enron’s financial statements. A change in this type of attitude by auditing firms was a result of the Enron scandal. The S.E.C. implemented the Sarbanes-Oxley Act (SOA) in 2002 in order to outline regulation that must be followed by all publically traded companies and their accounting firms. The SOA Act created the Public Company Accounting Oversight Board (PCAOB) which is responsible for the enforcement of the act. Another major change in the auditing world that was implemented by Sarbanes-Oxley was the creation of section 404 which requires management of publicly traded companies to issue a report on the company’s internal controls as well as the auditing firm to issue a separate report on how well these Internal Controls are actually being utilized. IMPACT ON AUDITORS Restoring auditor independence after the Enron scandal was extremely important in order to restore confidence with investor. This was so important because investors will not be willing to put their money into a publically traded company unless they are able to trust the financial statements that they are producing. In order to create confidence with investors, auditors must be
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both “Independent in fact” as well as “Independent in appearance.” “An auditor who is independent in fact has the ability to make independent audit decisions even if there is a perceived lack of independence or if the auditor is placed in a potentially compromising position.” “Even when the auditor is in fact independent, one or more factors may lead the public to believe the auditor does not appear independent.” If there is even an appearance of auditors not being independent then this could lead to investors not trusting their opinion on the clients financial statements. (
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This note was uploaded on 11/20/2011 for the course ACCT 555 555 taught by Professor Brandonpei during the Winter '10 term at Keller Graduate School of Management.

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AC555 project - The Challenges and Effects of the...

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