Chapter 5 Section 2: Sarbanes-Oxley Act of 2002 Flashcards
How many members are on the PCAOB?
Are they CPAs?
5
2 are, 3 aren’t
Who oversees the PCAOB?
SEC
What are the three duties of the PCAOB?
Register public accounting firms
Establish rules relating to the preparation of audit reports
Conduct inspections and investigations and disciplinary proceedings concerning registered public acc firms
Who can audit an SEC issuer?
Only registered firms
What are the three audit standards for registered firms?
Maintain workpapers for seven years
Provide second partner review of each audit report
Describe the testing of internal controls
Who inspects registered firms?
How often?
PCAOB
If they audit more than 100 issuers annually, review annually. If they audit less, do it every three years
Can the PCAOB impose civil penalties?
Criminal?
Yes
No
Can a firm that audits SEC issuers do their taxes too?
Only if pre-approved by the audit committee
How often do audit partners need to rotate?
Five years
Can the audit firm employ the issuer’s CEO, CFO, controller, or chief accounting officer?
Not for one year
What does the public company audit committee do?
They are directly responsible for the appointment, compensation, and oversight of the work of the firm employed by the public company. The auditor reports to them, and they are responsible for resolving disputes between the auditor and management.
Who are audit committee members?
They are to the on the board of directors, but otherwise independent.
When the CEO or CFO signs the reports, what are they confirming?
- They’ve reviewed it
- It doesn’t contain untrue information
- It fairly presents material aspects of the financial position
- They assume responsibility for internal controls
- They’ve disclosed fraud and deficiencies to the auditor
What if the issuer is required to prepare an accounting restatement due to material noncompliance?
The CEO and CFO need to reimburse them for bonuses or gains they received
Can issuers make personal loans to directors of officers?
No, unless they’re a bank and it’s in their line of business
Define principal stockholder
10% ,
They MUST file a report indicating how many shares they own within 10 days after becoming and officer, director or more than 10% owner of the Company
What disclosures do issuers need to make about codes of ethics?
Disclose if they have them for senior officers, or why they don’t
What is the special member an audit committee needs?
What qualities do they need to have?
A financial expert
Be an expert through a mix of education and experience
What penalties can be imposed for altering audit documents?
Criminal penalties
What are the three protections for whistle-blowers?
Reinstatement of employment
Back pay with interest
Compensation for damages
The code of ethics contemplates standards that promote what?
- Honest and ethical conduct
- Fair, Accurate, Complete, Timely disclosures (FACT)
- Compliance with laws, Rules and Regulations
Prohibited Services, what services will affect the independence while providing audit for SEC clients
-Bookkeeping
-Appraisal/valuation services
-HR/management functions
-Internal Audit
-Legal Services
CAN: provide tax services IF preapproved by audit sommittee
What are the penalties for securities fraud?
Criminal
fines and imprisonment up to 25 years
