Answers:

Introduction

The “SOX” or the “Sarbanes Oxley Act” of 2002 was passed by a single majority of the US Senate on 30 July, 2002 on the light of discovery numerous accounting scandals and scandals on financial reporting and auditing. The one of the most significant developments of this historic event was the formation and establishment of the “PCAOB” or the “Public Company Accounting Oversight Board” which had a direct impact on the working of the auditing professionals and the auditing profession in general. The primary aim of this research study is to identify the changes which have occurred after a successful passage of the SOX and formation of the PCAOB in 2002.

Description

The passage of the historic SOX and subsequent formation of the “PCAOB” changed the working of the auditing profession forever. The first significant change that could be noticeable was bringing an end to the self-regulation imposed by the auditors themselves on them. Post the formation of the oversight board, PCAOB, the auditors had to mandatorily upheld their independence from their clients under audit before acceptance of the audit engagement. Now, the “Auditing Standards” or “AS’s” are the statutes with which the auditors have to comply with at all times. Secondly, in the past the auditors were able to provide other assurance services to the same client under audit, now with the passage of the SOX, the auditors or the auditing firm in general is no longer able to provide other assurance services such as bookkeeping or tax advisory services to the same client under audit. Thirdly, the PCAOB through its “AS 5” have mandated the auditors to carryout an impartial assessment and audit of “Internal Control” of the audit client as a part of an effective conduction of the financial statement audit or an independent external audit. This is mandated because the auditors should identify the risks especially risk of internal control associated with the audit before conduction of the external audit thereby identifying the level of assurance the auditor could place on the client’s internal control. Fourthly, the formation of the new overseeing body of the “PCAOB”, mandated for an additional “Engagement Quality Review” under “AS 7” which was earlier not there. Under this new statute, an ongoing audit is to be impartially reviewed by a separate individual who may be from the same audit firm or from any other audit firm before the audit report is provided by the audit partner. Fifthly, the mandatory rotation policy of the auditors has been altered by the PCAOB and the SOX where the Act mandates a maximum of five consecutive years for a lead partner before mandatory rotation must be carried out which was seven years previously. The last major change to the auditing profession is a mandatory reporting on previously reported material weakness” on internal control under “AS 4” where the present auditor has to mandatory mention in his report the current status of the material weakness in the client’s internal control if any such matter was reported by the previous auditor.

Conclusion

On a concluding note, it can be said that the SOX and the subsequent development of the “PCAOB” have triggered many mandatory changes to the working of an auditor and to the auditing profession in general. Finally, it is worth mentioning that the changes which was done by the SOX and the establishment of the PCAOB is very rational in the light of the numerous accounting and auditing errors and scandals that were discovered very recently which is expected to refine the auditing profession and enhance the future audit quality.