DQ #1 - From personal experience, readings, and observation, explain why or why not the
Sarbanes Oxley Act is accomplishing what was intended and, more specifically, does Section
404 have the ability to produce results beyond just a reporting process?
To restore public confidence and bring in tighter audit controls, SOX created the Public
Company Accounting Oversight Board (PCAOB) which is charged with overseeing, regulating,
inspecting, and disciplining accounting firms who audit public companies. The creation of
PCAOB coupled with the new standards, changed the way the audit firms provided businesses to
their clients. One of the main goals of the SOX Act of 2002 was to increase transparency of
financial reporting. This imposed a greater reporting need and tighter internal controls for public
companies. Consequently, this brought about a greater need for specialized accountants
knowledgeable in SOX controls and related fields. The president of my company attested that
SOX was a lot of administrative burden for the company since it is a small private company.
However, they do seek out the advice of a CPA for tax purposes and for reporting purposes when
we were once audited. Overall, it does seem like the benefits outweigh the negatives of the act.
Do the costs outweigh the benefits of SOX compliance?
Arens, A. A., & Elder, R. J. (2016). Auditing and assurance services: an integrated approach
(16th ed.). Upper Saddle River, NJ: Pearson-Prentice Hall.
DQ #2 - Discuss the relevance and benefits of holding public accounting firms more accountable
for the detection of fraud?
Auditing standards require the auditor to assess the risk of material misstatement due to fraud,
and those standards provide guidance to assist the auditor in making that assessment. Auditors
must view all aspects of audit with skepticism regardless of the auditor’s prior experience with
the integrity and honesty of the client. If any conditions indicate a material misstatement due to
fraud, auditors should probe the issues, question the management and discuss with other team
members. It is impossible for auditors to test all transactions. Auditors are more prone to
focusing on material, high dollar value transactions. If there are dishonest clients and know the
auditor’s style of auditing, they could potentially hide fraud in small transactions. On the other
hand, auditors tend to audit the same way year after year and this provides incentives to
companies to commit fraud. New auditors perform the bulk of the groundwork. They might not
completely understand the business and may not know the right questions to ask. If an auditor
has done a thorough job with enough evidence, then the accounting firm should not be held
liable. As mentioned earlier, it is not practical for auditors to test every single transaction.
What are some ways auditors respond to fraud risks?
Arens, A. A., & Elder, R. J. (2016). Auditing and assurance services: an integrated approach
(16th ed.). Upper Saddle River, NJ: Pearson-Prentice Hall.