R5 SOX Act of 2002

Question 1

List some of the provisions of SOX related to the structure and duties of PCAOB.

Answer 1

1. Two members must be (or have been) CPAs and 3 members cannot be (and cannot have been) CPAs
2. The PCAOB is subject to oversight by SEC
3. The PCAOB has the duty to:
   i. Register public accounting firms that prepare audit reports for issuers of securities
   ii) Establish rules relating to the preparation of audit report for issuers; and
   iii) Conduct inspections, investigations, and disciplinary concerning registered public accounting firms.

Question 2

Public Acctg firms registered with PCAOB must adhere to certain auditing standards. What are these?

Answer 2

1. Maintain audit documentations for 7 years
2. Provide a concurring or second partner review of each audit report and
3. Describe in audit report the scope and testing of the issuer’s internal controls structure and procedures.

Question 3

What are some of the requirement of the PCAOB related to the operations of accounting firms?

Answer 3

1. Registered accounting firms must monitor professional ethics and independence from issuers that it audits and must supervise audit work (quality Control)
2. The board must inspect registered public accounting firms that regularly audit more than 100 issuers annually, and must inspect firms that perform fewer audits and least once every 3 years. (Inspections)
3. The PCAOB can conduct investigations of wrongdoing by registering firms or associated persons of those firms. (Investigations)

Question 4

Name some of the provisions of SOX related to auditor independence.

Answer 4

1. Registered CPA firms performing SEC audits may not provide certain “prohibited services” to the audit client.
2. All services prohibited by an auditor to an issuer should be pre-approved by the audit committee of the issuer.
3. The lead audit or coordinating partner and the reviewing partner must rotate off the audit every 5 years.
4. The registered firms must report certain information to the audit committees of the audit client, such as critical accounting policies, alternative accounting treatments, and material written communications between the auditor and management.

Question 5

List some of the SOX requirements related to public company audit committees.

Answer 5

1. Public companies must have audit committees; the auditor report directly to the audit committee
2. Audit committee members are to be members of the issuers’ board of directors but are to be otherwise independent according to the PCAOB standards.
3. The audit committee must establish procedures for accepting reports of complaints regarding audit, accounting or internal control issues.

Question 6

The CEO and CFO (or equivalent position) must sign representations regarding annual and quarterly reports. What are their assertions related to these reports?

Answer 6

1. They have reviewed the report
2. The report does not contain untrue statements or omit material info.
3. The F/S fairly present in all material respects the financial conditions and result of operations of the issuers.
4. I/C have been designed to ensure that material information has been made available
5. I/C have been evaluated for effectiveness as of a date within 90 days prior to the report and
6. The Ceo and Cfo assume responsibility for I/C

Question 7

Describe the provisions of whistle-blowers protection

Answer 7

An employee who lawfully provides evidence of fraud may not be discriminated against for providing such info

An employee who alleges discharge or other discrimination for providing evidence of fraud may file a complaint with the Secretary of Labor and may be provided with compensator damages including:

i) Reinstatement with same seniority status that the employee would have had
ii) Back pay with interest and
iii) Compensation for any special damages as a result of the discrimination