Business

Section 2: The CPA Profession

Objective of FS Audit

• Focus is on:

o maintaining independence:

o encouraging competence:

o promoting ethical behavior

• Protection from litigation risk:

LLP Partner Liability

• Personally liable for:

1.

2.

3.

• Not personally liable for:

1.

2.

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Section 2: The CPA Profession

Sarbanes Oxley-Act of 2002 (SOX)

• Signed on July 30, 2002

• Significant changes to the securities laws

• Huge implications for the audit profession:

o

o

o

SOX Independence Provisions

• Nonaudit service prohibitions for audit clients

• Audit committee requirements

• “Cooling off” period for employment at client

• Partner rotation

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Section 2: The CPA Profession

SOX Prohibited Nonaudit Services

• bookkeeping or related financial statement services

• financial information systems design and implementation

• appraisals/valuations and other reports related to M&A

• actuarial services

• internal audit outsourcing

• management functions or human resources

• broker/dealer, investment adviser, investment banking

• legal and expert services unrelated to the audit

• any other service the PCAOB determines is impermissible

SOX Public Company Audit Committees Provisions

• Committee is subset of BOD’s independent members

• Must have a financial expert (or explain why not)

• Auditor reports to audit committee

• Must preapprove all audit/nonaudit services

• Communicate w/ auditors re audit issues, acct issues, etc.

SOX Employment and Partner Rotation Provisions

• Cooling off period to be hired by client

o Applies to engagement team members

o CEO, CFO, CAO, Controller, or equivalent position

• Partner rotation

o Lead and review partners must rotate every 5 years

o Cannot return to engagement for another 5 years

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Section 2: The CPA Profession

Accounting & Auditing Standard Setting and Oversight

US

International

Accounting

Public:

SEC

FASB → FAS

?

IFAC → IFRS...