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Flashcards in SOX 2002 Deck (23):

What is the Sarbanes-Oxley Act of 2002?

The most significant legislation affecting the accounting profession since the 1933 and 1934 securities acts. Various provisions of the legislation apply solely the audits of publicly held companies and audit firms that conduct those audits.


What is the Public Company Accounting Oversight Board (PCAOB)?

For public companies it..

provides oversight for audits and auditors

establish auditing and quality control standards

inspections of quality control systems at audit firms


Describe the composition of the PCAOB?

independent not-for-profit agency that was created under the authority of the SEC. Comprised of 5 members appointed by SEC. Only 2 can be CPA's. Funded by fees charged to publicly held companies and their independent audit firms.


Who must register with the PCAOB?

Any audit firm that prepares, issues, or participates in the preparation of an audit report for an issuer.


What does the term issuer mean?

any company that issues marketable equity securities and is, thus, publicly held.


What info is gathered by the PCAOB from the audit firm via registration process?

1. All clients who are issuers

2. All accountants who participate in audits of issuers

3. Fees from each issuer, allocated between audit and non audit services

4. Info about criminal, civil or administrative actions that are pending as regarding the firm or its members

5. Disagreements between any issuer and the firm


How often does the PCAOB perform inspections of each registered auditing firm?

> 100 issuers every year

otherwise once every 3 years


What kind of diciplinary action can the PCAOB take against registered CPA firms, their partners, and firm employees?

1. Suspend or revoke registration of the firm

2. Assess financial penalties of up to $15 million for firms and $750,000 for ind. employees

3. Require additional training or CPE for firm individuals

4. Make public quality control system deficiencies that are uncovered through inspection if not addressed in 12 months


What does PCAOB AS 1 require in relation to the scope of the CPA audit report?

the scope paragraph must indicate the audit was conducted in accordance with the standards of the PCAOB


What does PCAOB AS 5 require of the CPA in an evaluation of internal control?

CPA must evaluate management's assessment of internal control over financial reporting and assess effectiveness of internal control.


What does PCAOB AS 3 require with respect to audit documentation?

Documentation should stand on its own.

Indicate clearly what work performed, who performed it, when completed, who reviewed, date it was reviewed.

Completed within 45 days after audit report issued.


What is meant by the term integrated audit?

includes an audit of the F/S and internal control over financial reporting


How many reports concerning internal control are required by SOX on an annual basis?

one issued by management.

one issued by the auditor.


Explain the nature of the two subsections of SOX section 404.

1. Acknowledges its responsibility for internal control
2. assessment of internal control effectiveness.
3. ID's framework for evaluating internal control
4. Statement that auditor has issued attestation report on managements assertions.

Attest and report on management assessments as to effectiveness of internal control over financial reporting.


What serves as the standard for determining the effectiveness of internal control over financial reporting by management and the auditor?



SOX establishes managements responsibility for demonstrating that internal controls, how is this made evident by the act?

Accepting responsibility for effectiveness of internal controls

Evaluating the effectiveness of internal control using suitable control criteria


What are the 9 prohibited services as defined in section 201 of SOX?

1. Financial information system design and implementation.

2. Internal auditing services.

3. Bookkeeping and/or maintaining client accounting records or F/S

4. Valuation or appraisal services

5. Actuarial Services

6. Management functions or HR functions

7. Broker or dealer, investment adviser, or investment banking services.

8. Legal and expert services unrelated to the audit.

9. Any other service the board determines to be not permissible by regulation


What are the requirements of the members of the BOD who serve on the audit committee?

independent from management

responsible for appointment, compensation and retention of independent auditors

one member must be a financial expert


In accordance with SOX, to whom do the independent auditors report?

the audit committee


How often must the lead partner in a continuous audit engagement rotate?

a minimum of once every 5 years


What type of certification must be provided annually by the CEO and CFO?

A statement certifying as to the appropriateness of the F/S and attesting that those statements and disclosures fairly present, in all material respects, the operations and financial condition of the reporting company.


What is the maximum length of time for auditors to complete an audit documentation file after the report release date?

45 days. after this period no information may be discarded from working papers and any changes must include the name of the individual and the reason the changes were made.


How longs does SOX require auditors to retain working papers and other related audit documents after completion of an audit?

For a period of not less than seven years.