Chapter 5 Section 2: Sarbanes-Oxley Act of 2002

Question 1

How many members are on the PCAOB?

Are they CPAs?

Answer 1

5

2 are, 3 aren’t

Question 2

Who oversees the PCAOB?

Answer 2

SEC

Question 3

What are the three duties of the PCAOB?

Answer 3

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

Question 4

Who can audit an SEC issuer?

Answer 4

Only registered firms

Question 5

What are the three audit standards for registered firms?

Answer 5

Maintain workpapers for seven years
Provide second partner review of each audit report
Describe the testing of internal controls

Question 6

Who inspects registered firms?

How often?

Answer 6

PCAOB

If they audit more than 100 issuers annually, review annually. If they audit less, do it every three years

Question 7

Can the PCAOB impose civil penalties?

Criminal?

Answer 7

Yes

No

Question 8

Can a firm that audits SEC issuers do their taxes too?

Answer 8

Only if pre-approved by the audit committee

Question 9

How often do audit partners need to rotate?

Answer 9

Five years

Question 10

Can the audit firm employ the issuer’s CEO, CFO, controller, or chief accounting officer?

Answer 10

Not for one year

Question 11

What does the public company audit committee do?

Answer 11

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.

Question 12

Who are audit committee members?

Answer 12

They are to the on the board of directors, but otherwise independent.

Question 13

When the CEO or CFO signs the reports, what are they confirming?

Answer 13

1. They’ve reviewed it
2. It doesn’t contain untrue information
3. It fairly presents material aspects of the financial position
4. They assume responsibility for internal controls
5. They’ve disclosed fraud and deficiencies to the auditor

Question 14

What if the issuer is required to prepare an accounting restatement due to material noncompliance?

Answer 14

The CEO and CFO need to reimburse them for bonuses or gains they received

Question 15

Can issuers make personal loans to directors of officers?

Answer 15

No, unless they’re a bank and it’s in their line of business

Question 16

Define principal stockholder

Answer 16

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

Question 17

What disclosures do issuers need to make about codes of ethics?

Answer 17

Disclose if they have them for senior officers, or why they don’t

Question 18

What is the special member an audit committee needs?

What qualities do they need to have?

Answer 18

A financial expert

Be an expert through a mix of education and experience

Question 19

What penalties can be imposed for altering audit documents?

Answer 19

Criminal penalties

Question 20

What are the three protections for whistle-blowers?

Answer 20

Reinstatement of employment
Back pay with interest
Compensation for damages

Question 21

The code of ethics contemplates standards that promote what?

Answer 21

1. Honest and ethical conduct
2. Fair, Accurate, Complete, Timely disclosures (FACT)
3. Compliance with laws, Rules and Regulations

Question 22

Prohibited Services, what services will affect the independence while providing audit for SEC clients

Answer 22

-Bookkeeping
-Appraisal/valuation services
-HR/management functions
-Internal Audit
-Legal Services
CAN: provide tax services IF preapproved by audit sommittee

Question 23

What are the penalties for securities fraud?

Answer 23

Criminal

fines and imprisonment up to 25 years