Sarbanes-Oxley Act Analysis - Article Example

Summary Even though there is a considerable overlap amongst companys confession control, dealings and its internal control over economic exposure, the SEC has pointed out that "a number of rudiments of company’s confession control and dealings are not included by internal control over economic exposure and several rudiments of internal control that are not counted by the classification of company’s confession control and dealings.” The key peculiarity among them is that the company’s confession control and dealings report both, non-financial information and financial information. Companys higher executive, the review committee, panel of executives and the public auditors engaged bear the primary burden of your selected company complying with the new internal control requirements. In addition to requiring that, a companys management establishes and maintains adequate internal controls of economic exposure and reports on internal control in each annual report, a section of Sarbanes-Oxley imposes requirements on the public accounting firm that audits the companys financial statements. The internal control’s standard adopted by the Public Company Accounting Oversight Board (PCAOB), which is the accounting entity created as a result of the Sarbanes-Oxley Act, requires a public companys auditor to conduct a separate audit of the effectiveness of the companys internal control over economic exposure and managements assessment with such effectiveness, and to report on those matters. The standard also requires the auditor to consider the effectiveness of the companys audit committee in evaluating the effectiveness of the companys internal control. As part of their internal control responsibilities, your companys principal executive and financial officers are responsible for designing (or overseeing the design of) the process for providing reasonable assurance of the reliability of the companys financial reporting and that the companys financial statements for external purposes are prepared in accordance with GAAP. Your management must adopt procedures suited to the needs of your company to evaluate the design of internal control over financial reporting and test its effectiveness. Your management must decide on a framework to evaluate the effectiveness of internal control over financial reporting. SEC rules require that the framework be "a suitable, recognized control framework" that has been "established by a body or group that has followed due-process procedures, including the broad distribution of the framework for public comment." Although other frameworks may comply with SEC criteria, the SEC has specifically stated that the framework in the 1992 report of the Committee of Sponsoring Organizations of the Treadway Commission satisfies the criteria. Although your companys auditors may help outt management in documenting internal controls, the PCAOB standard and the SECs auditor independence rules severely restrict the amount of assistance that is permitted. The PCAOB standard provides that management must be actively involved and must not assign to the auditor managements responsibility to assess the companys internal control over financial reporting. The SEC staff made a point of reminding companies of that requirement in the release adopting the internal control rules. If you seek assistance from a third party in conducting the internal control review, that assistance will need to be provided by someone other than your companys current auditor. (Internal Controls Sarbanes Oxley)1 As auditors we work diligently with clients to ensure our recommendations make sense; the same critical thinking should apply when were on the other side of the report. Does audit automation software really enhance the quality and quantity of the audit departments work? For a department within a small, nondynamic company, it might not. But given DRUs size, and the scope of its operations, the software may be of value. In my department, automation tools facilitate information sharing and help ensure consistency of practice. Theyre especially valuable in light of our teams activities across multiple locations and wide range of expertise. Once Sally determines whether the recommendation makes sense, she can justify software acquisition by quantifying impending benefits. Plus, she should seek the support of a "champion" from senior management or the audit committee. Sally should consider quantifying several items before presenting her case to the designated champion. In addition to the value gained through increased audit productivity, the corporation may benefit from some products’ ability to integrate with software designed to help comply with the requirements Attaching a specific monetary value to this benefit may be difficult. One approach, however, is to quantify the time internal auditing spends in rework due to review notes or report editing. Plus, audit automation software can be viewed as a control that improves observance (Cost of the clerical work). The process of cross-referencing, filing, and backing up work papers can be very time consuming. Plus, additional time is often needed to gather information for any follow-up reporting required on outstanding items. Many work paper packages are designed to handle these tasks automatically. When selling the service firms recommendation to her department, the audit committee, and company management, Sally should consider the following benefits offered by many AIS packages: 1) An AIS can considerably lower ad hoc processes and overlapping of effort by offering standardized audit programs and maintaining consistency across similar audits. 2) The software also allows managers to review work from other locations most possibly the headquarters thereby lowering the time spent on travel. 3) Audit cycle times can also improve with the help of AIS implementation, allowing more coverage in the annual audit plan. Once Sally has received any necessary approvals, she can focus on obtaining and implementing the AIS package. Upon reaching this stage, she should consider the following activities: a) Survey similar audit departments b) Ask audit staff members to find out their requirements for the system. c) Hire a short-term consultant who would assist in the implementation of the system. Finally, Sally should keep senior management and the audit committee apprised of her groups progress with the AIS. The improved efficiency of work within the companys growing environment will be the ultimate confirmation of success. Before making a decision, Sally needs to gain an understanding of available work paper products and their respective features. She should also consider product compatibility with other software tools, including capabilities that could facilitate her companys risk assessment and Sarbanes-Oxley processes. To gain support for implementation and help clarify benefits for the department, Sally should include her staff in the evaluation process. Both staff and audit management will need to learn the new product and embrace any new or modified administrative responsibilities it might introduce. Moreover, the team should evaluate existing applications and tools used to support the audit process and identify any opportunities for integration, conversion, or elimination. Sally should also partner with her companys procurement and information technology (IT) teams to ensure products under consideration are compatible with DRUs IT environment. In addition, she should work with them to determine the full cost of implementation, including software, hardware, training, and maintenance expenses. Ultimately, the purchase decisions will likely hinge on a comparison of cost versus benefits. Although costs are relatively easy to document, quantifying benefits can be more difficult. Vendors can assist by providing the projected benefits of implementing their product. (The Value Automation)2 References: 1) Internal Controls Sarbanes Oxley 2) The Value Automation Read More