Sarbanes Oxley Act

The SEC strives to protect investors, maintain orderly operations in financial markets and capital formation. The laws that govern the SEC imply that all investors, no matter the size, should have facts about an investment, be accessible them, prior to buying it, and throughout the duration of ownership. Public companies are required by the SEC to provide to the public meaningful and valid information regarding financials and other pertinent information. This information can be used by all investors to make judgments regarding the purchase, sale, or retaining of an investment (Sarbanes-Oxley Act 1, PPT).

The Sarbanes-Oxley Act of 2002, created a nonprofit corporation called the PCAOB which supervises the auditors of public companies. This corporation operates under the oversight of the SEC and is for the purpose of protecting investors. All outside independent audit firms are regulated and inspected by the PCAOB and must be registered with the corporation. The standards and rules for the audit firms are set by the PCAOB and if an audit firm is found to be in violation of the audit standards the PCAOB has a division to erect discipline (Lee, 2003, p. 7).

The Sarbanes-Oxley Act of 2002 was created due to the knowledge of deceptive accounting practices in companies such as WorldCom and Enron. These companies were audited by external audit firms that had members who were allowed to both audit and consult for the same company. This was changed with the Sarbanes-Oxley Act of 2002; sections 103 and 201 through 208 (a) of the act addresses auditing firms which are now strictly regulated to avoid conflict of interest violations in audits by outside independent firms (Lee, 2003, p. 1 & 2).

The Sarbanes-Oxley Act of 2002 changed the way independent auditors do business changing them from a self-regulated industry to a publicly regulated industry. There are new rules in place that directly govern the process of performing an audit for an independent audit firm...