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Sarbanes Oxley Act Section 201 Presented by: Sharyn McConnell

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Title: Sarbanes Oxley Act Section 201 Presented by: Sharyn McConnell


1
Sarbanes Oxley Act- Section 201Presented by
Sharyn McConnell
  • INDEPENDENCE precludes relationships that may
    impair the auditors objectivity. Auditors must
    be independent BOTH
  • In-Fact
  • AND
  • In Appearance
  • This ensures that users of financial statements
    maintain their confidence that they were prepared
    truthfully.

2
Accounting Auditing Standards Governing
INDEPENDENCE
  • GAAS Generally Accepted Auditing Standards
  • The second General Standard states In all
    matters relating to the assignment, an
    independence in mental attitude is to be
    maintained by the auditor or auditors.

3
AICPA Rules of Conduct
  • Section 100 of the AICPA Rules of Conduct
    currently contains two rules related to
    independence, integrity, and objectivity.
  • Rule 101 A member in public practice shall be
    independent in the performance of professional
    services as required by standards promulgated by
    bodies designated by Council.

4
AICPA Rules of Conduct
  • Rule 102 In the performance of any
    professional service, a member shall maintain
    objectivity and integrity, shall be free of
    conflicts of interest, and shall not knowingly
    misrepresent the facts or subordinate his or her
    judgment to others.

5
AICPA Rules of Conduct
  • AICPA professional standards require public
    accounting firms, the individual partners, and
    the professional employees, to be INDEPENDENT
    whenever the firm performs an attest service for
    a client. Attest Services
  • Financial Statement Audits
  • Financial Statement Reviews
  • Other Attest Services

6
AICPA Rules of Conduct
  • Auditor INDEPENDENCE is important to ensure that
    the stockholders best interests are being
    protected.
  • Rules 101 and 102 of AICPA Rules of Conduct
    include a detailed interpretation of activities
    and services that would impair an auditors
    independence.

7
SOX Section 201
  • Sarbanes-Oxley includes rules to strengthen
    auditor independence.
  • Section 201 of the Sarbanes-Oxley Act lists nine
    non-audit services that, if provided by the
    accounting firm, impair the firms INDEPENDENCE.
  • SOX also requires the financial statements to
    include additional disclosures regarding the
    services provided to the client, by the
    independent auditor.

8
SOX Section 201, Non-Audit Services
  • 1. Bookkeeping or other services related to the
    accounting records to financial statement of the
    audit client.
  • An audit firm should not audit any bookkeeping
    services provided by their own firm.
  • 2. Financial information systems design and
    implementation.
  • An important test of internal controls performed
    by an audit firm is of the Accounting Information
    Systems. The INDEPENDENCE of this test would be
    IMPAIRED if the auditor audits the systems they
    have set up and placed into service.

9
SOX Section 201, Non-Audit Services
  • 3. Appraisal or valuation services, fairness
    opinions, or contribution-in-kind reports.
  • Appraisal and valuation services may include any
    process of valuing assets (tangible or
    intangible) or liabilities.
  • Example Inventory valuation
  • In fairness opinions and contribution-in-kind
    reports, an audit firm provides its opinion on
    the adequacy of consideration in the transaction.

10
SOX Section 201, Non-Audit Services
  • 4. Actuarial Services
  • Involves the determination of amounts recorded in
    the financial statements and related accounts.
  • Example Pension Expense calculation to
    determine whether a fund is overfunded or
    underfunded
  • 5. Internal audit outsourcing services
  • The External Auditor may NOT provide services
    that have been outsourced by the internal
    auditor. This would impair the external
    auditors INDEPENDENT evaluation of the companys
    internal controls.

11
SOX Section 201, Non-Audit Services
  • 6. Management functions or human resources
  • The auditors INDEPENDENCE is IMPAIRED when they
    seek out prospective candidates for managerial,
    executive, or director positions.
  • The audit firm may not act, temporarily or
    permanently, as a director, officer, or employee
    of their client.
  • The audit firm may not perform any
    decision-making, supervisory, or ongoing
    monitoring function for their client.
  • The audit firm may not recommend or advise the
    client to hire a specific candidate for a
    specific job.

12
SOX Section 201, Non-Audit Services
  • 7. Broker or detail, investment adviser, or
    investment banking services.
  • The auditors INDEPENDENCE is IMPAIRED if they
    act as a registered or unregistered
    broker-dealer, promoter, or underwriter on behalf
    of their client.
  • 8. Legal Services
  • If a legal service could be provided by someone
    licensed, admitted, or otherwise qualified to
    practice law in the respective jurisdiction, an
    auditors INDEPENDENCE would be IMPAIRED if they
    did provide the service.

13
SOX Section 201, Non-Audit Services
  • 9. Expert services unrelated to the audit
  • An auditor may not act as legal representation of
    an audit client, in order to advocate a clients
    interests, in litigation nor in an administrative
    proceeding or investigation.
  • An auditor may provide factual accounts or
    testimony to explain conclusions reached during
    the performance of their services, especially if
    subpoenaed by a court of law.
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