Public Company Accounting Reform and Investor Protection Act Essay

Public Company Accounting Reform and Investor Protection Act - Essay Example This state of affairs triggered a requirement for a regulation that could establish legal requirements for companies to ensure that their systems are controlled and the information they publish conform to the actual status, and is not altered, modified or changed with an intention to deceive anyone. The Sarbanes Oxley Act (also known as known as the Public Company Accounting Reform and Investor Protection Act of 2002 and commonly called SOX or Sarbox (Wikipedia.org, 2007), was implemented in 2002 to regain public's trust in the accounting and reporting practices of companies in US, to reinforce investment confidence and protect investors by improving the accuracy and reliability of corporate information with regard to finance, operations and information systems. A brief description of key provision of SOX is provided below: A Public Company Accounting Oversight Board (PCAOB) was established as a result of the passage of the act, to ensure that interests of the investors in public companies are secured, and the audit reports are developed and represent true and fair opinion on the affairs of the company (FindLaw.com 2002). The key functions and duties of PCAOB as documented in the law are as follow: The 'independence' of the auditor is critical for performing any audit related activity for any client. ISACA (Information Systems Audit and Controls Association) (2006) requires auditors to be independent of auditee in both attitude and appearance (professional independence) and the entire audit function to be independent of the area or activity being reviewed to permit objective completion of the audit assignment. The SOX act requires the auditors to be independent. The law states that auditors should not have any operational and/or decision making role for the activity which they are auditing. Corporate Responsibility The act requires public companies to certify in their financial reports that a senior manager has reviewed the report and that the report does not have material misstatements. As per section 302 of the act, the senior management is responsible to develop and implement system of internal controls, and compliance systems. The act requires that the corporate financial statements should have following certifications: The signing officers have reviewed the report The report does not contain material misstatement or material omission or is misleading The financial statements and information fairly represent the factual position and health of the company The signing officers are responsible for internal controls and have reviewed internal controls in previous 90 days Significant changes to internal control environment The report should have a list of all deficiencies in the internal controls and information on any fraud involving employees Enhanced Financial