How did the Sarbanes-Oxley Act affect the accounting profession?
Did it change their relationship to businesses?
The Sarbanes-Oxley Act (SOX) is a significant piece of legislation that was introduced in the United States in 2002. It was enacted to address the corporate accounting scandals that occurred at that time, including the infamous Enron and WorldCom cases. The Act aimed to restore public trust in the financial reporting and governance of public companies.
One of the primary impacts of the Sarbanes-Oxley Act on the accounting profession was the requirement for increased financial disclosure and transparency. Public companies are now obligated to implement and maintain internal control systems to ensure the accuracy and reliability of their financial reporting. These control systems need to be assessed and audited by external auditors. As a result, accounting firms have faced significant changes in their relationships with businesses.
The Act established the Public Company Accounting Oversight Board (PCAOB), which oversees the audits of public companies. It sets auditing standards and conducts inspections of audit firms to ensure compliance with these standards. To maintain independence and objectivity, auditors are no longer allowed to provide certain non-audit services to their audit clients, thereby enhancing the independence of the accounting profession.
Additionally, the Sarbanes-Oxley Act increased the penalties for corporate fraud and established new regulations for corporate governance. It required the establishment of audit committees composed of independent directors, who are responsible for overseeing the financial reporting process and the selection of external auditors.
Overall, the Sarbanes-Oxley Act significantly impacted the accounting profession by strengthening the accountability, independence, and transparency of auditors. It changed the relationships between accountants and businesses by imposing stricter regulations, enhancing the role of auditors, and providing greater protection for investors and the public.