Corp Gov Sarbanes-Oxley Act (SOX) (2/3)

Question 1

Corporate Responsibility Law

Answer 1

“Public Company Accounting Reform and Investor Protection Act of 2002”

A response to external auditors missing fraud

Question 2

SOX named after?

Answer 2

Senator Paul Sarbanes and Representative Michael G. Oxley

Question 3

How many titles does SOX have?

Answer 3

11

Question 4

Board that SOX created?

Answer 4

Public Company Accounting Oversight Board

Question 5

How many members in PCAOB and appointed by whom?

Answer 5

5 members, appointed by Securities and Exchange Commission

Question 6

Limitations on CPA members of board? How many?

Answer 6

Maximum 2. CPA on PCAOB NOT MANDATORY

3 required to be Non-CPA

Question 7

PCAOB Chairperson limitation as CPA?

Answer 7

Not be a practicing CPA for at least 5 years

Question 8

What does PCAOB do? (4)

Answer 8

Register audit accounting firms
Create standards
Conduct inspections
Impose sanctions/punish CPA firms

Question 9

New rules for externalu auditors under SOX? (6)

Answer 9

Rotation policy
Workpaper retention
Revolving door eliminated
Concurring partner approval
Restricts auditor from performing certain kinds of non auditing services

Question 10

What non-auditing services are auditors restricted from performing? (7)

Answer 10

Cannot do both internal AND external of the same company
Cannot help with bookkeeping accounting if you are auditing firm
Cannot do legal work
Cannot help with HR matters
Cannot help with investment advice
Cannot do business valuation
Cannot do any IT modifications to system

Question 11

What is Section 404 of SOX?

Answer 11

Attestation on Internal Controls: required to give opinion on state of company’s internal controls

Question 12

Definition of KEY CONTROL

Answer 12

a control that, if fails, there is a REASONABLE LIKELIHOOD that material error in financial statements would not be prevented or detected on a timely basis

Question 13

Definition of CONTROL DEFICIENCY

Answer 13

Exists if internal controls do not permit company personnel to prevent or detect misstatements on timely basis

Question 14

Two different control deficiency?

Answer 14

Design deficiency: if control is missing or improperly designed
Operation deficiency: if well designed control does not operate as designed

Question 15

Definition of SIGNIFICANT DEFICIENCY

Answer 15

Exists if one or more control deficiencies exist that is less severe than a material weakness

Question 16

Definition of MATERIAL WEAKNESS

Answer 16

exists if a SIGNIFICANT DEFICIENCY results in a REASONABLE POSSIBILITY that internal control will not prevent or detect material financial statement misstatements on a timely basis

Question 17

What is an integrated audit?

Answer 17

In addition to opinion on financial statements, auditor required to prepare audit report in internal controls

Question 18

Types of Opinions? (3)

Answer 18

Unqualified Opinion (BEST)
Adverse Opinion (WORST)
Qualified or Disclaimer of Opinion

Question 19

When is an Unqualified Opinion issued? (2 conditions)

Answer 19

1. No identified material weaknesses

2. No restrictions on the scope of the auditor’s work

Question 20

When is Adverse Opinion issued?

Answer 20

when ONE material weakness exists

Question 21

When is Qualified or Disclaimer of Opinion issued?

Answer 21

issued when there is a scope of limitations:
Qualified: MINOR issues
Disclaimer: MAJOR issues