Pros And Cons Of Sarbanes Oxley Act Of 2002

Due to the Enron scandal, there needs to be implementation of new recommendations to prevent this from happening again to other firms or companies. The introduction of the Sarbanes Oxley Act of 2002 was implemented to strengthen rules and regulations while audit procedures are being performed. To this day, all auditors follow the PCAOB which stands for the Public Company Accounting Oversight Board. The PCAOB is used to establish and maintain high quality auditing and professional practice standards for audits of public companies, issuers, and broker dealers to obtain accurate and informative information and audit reports. (cite) I agree with these standards because the implementation of the Sarbanes Oxley Act of 2002 was created to protect

Another recommendation would be to rotate audit firms every few years. However, there is no current law in the United States which says companies need to rotate audit firms every 5 years. However, there is a law in effect over public companies; they must rotate engagement partners every 5 years. The PCAOB has a concern with long term relationships with auditors that can deter accurate and independent audits. However, there are pros and cons to this but there are more cons that outweigh the pros of rotating audit firms frequently. The AICPA opposed the mandatory rotation of audit firms due to “costly and unintended consequences. Multiple

Internal controls protect fraud from occurring and organizing segregation of duties within an organization. In accounting, internal controls set the tone of the audit, meaning if there is a lack of internal controls in any given organization, that it is heavily documented and could potentially change the audit opinion depending how severe it is. Most of the time, there will be significant deficiencies around these areas. The best way to describe internal controls and the importance to an organization is that internal controls help companies to comply with laws and regulations and to prevent fraud. Additionally, they can also help make sure policies and accurate reports are completed. (cite) Enron had multiple issues with internal controls which led to their big scandal and bankruptcy. For example, daily cash and debt maturities were not kept track of, and most importantly balance sheet debt was dismissed. Additionally, Enron had the same entity to audit internally and externally. If internal controls were implemented properly, top executives would not be able to manipulate information and other accounting areas would be audited correctly. Internal controls would be a top recommendation to prevent this from happening again. Another recommendation that would go very hand in hand with internal controls would be the implementation of policies and procedures for the business to run. For example, this is