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Dentify the basic provisions of the Sarbanes-Oxley Act that specifically deal with ethics and Independence and research how this Act has affected auditors since it was established in 2002 - Essay Example

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The Sarbanes-Oxley Act of 2002 was enacted to arrest the growing concern of corporate fraud that led to investors losing billions of shillings due to malpractices by management with disregard to financial accountability. The paper expounds on specific provisions of the Act…
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Dentify the basic provisions of the Sarbanes-Oxley Act that specifically deal with ethics and Independence and research how this Act has affected auditors since it was established in 2002

Download file to see previous pages... An example is the collapse of Enron. Unethical conduct on the part of Corporate CEOs and Audit Firms was responsible (Rezzy, 2007). To avoid a repeat of the same, the Sarbanes-Oxley Act was passed to instill ethics and instigate independence auditors. The essay covers specific provisions of the statute intended to promote ethics and independence to demonstrate how the act has affected auditors.
Section 101 created the Public Company Accounting Oversight Board as an independent body with the onus to monitor and regulate the activities of auditors (Freeman, 2009). The board has since ensured that auditors comply with the provisions of the legislation as well as comply with the code of ethics for persons in the auditing business. Since the introduction of the Board, it is believed that audit malpractice has reduced due to the stiffer penalties that threaten implicated firms as a result of the Board’s investigations according to Romano (Romano, 2005).
Title III from section 301 to 308 endeavors to promote ethics by obligating company executives to be personally responsible for the financial reports of the corporate, whether quarterly, semi-annually or annually. To avoid malpractice, CEOs and other chief management staff are required to inspect and pass as accurate the financial statements of the company before they are released. This in turn makes the officers personally liable if any misstatements are made that could be misleading as to the financial soundness of the company. Green states that any officer required to append signature on a financial report must only do so after doing due diligence using their knowledge to make sure that everything stated therein is true to avoid personal liability (Green, 2004). This has had the effect of reducing fraud as corporate executives struggle to ensure that financial reports are as accurate as ...Download file to see next pagesRead More
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