Department of Accounting and Information systems

University of Dhaka
A Report on
Sarbanes Oxley Act & PCAOB
Course name: Auditing & Assurance I (3103)
Group Name: Accountants’ Kernel

Submitted to: Md. Rezaul Karim

Assistant Professor,
Department of Accounting and Information systems
University of Dhaka.
Submitted by: Ahmed Sabuj
Roll: 24-039
Section: B
On Behalf of Group Members
Department of Accounting and Information systems
University of Dhaka.
Submission Date: 10 September 2020
 Group Members’ List

Name Roll

Ahmed Sabuj 24-039

Md. Rakibur Rahman 24-002
Md.Murad Mondol 24-008
Hridoy Sarker 24-057
Israt Jahan 24-107
Reza Ali 24-113
Abdul Malek 24-167
Md.Mujammel Husain 24-203
Ananda Chakma 24-215

Letter of Submission
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 Accountants’ Kernel
Section: B
Batch: 24th
Dept. of AIS
University Of Dhaka
Date: September 10, 2020
Dear Sir,
We wish to submit a report entitled “Report on Sarbanes Oxley Act & PCAOB”.
This Sarbanes Oxley Act 2002 was passed as a reaction to various accounting scandals like Enron and
WorldCom. This law has 11 sections that are mainly used as a protected shield to various accounting
malpractice. The provisions of this bill dictate the responsibilities of the public company’s board of
directors, apply penalties for misconduct and make it compulsory to SEC to create regulations to dictate how
public corporations are to comply with the law.
In our report, we tried to include details about Sarbanes Oxley Act 2002. Here we started our report with the
introduction of this Act followed by its history, backgrounds, different elements, various provisions with
relative case examples, and praise & criticism regarding this Sarbanes Oxley Act 2002. In the second portion
of our report, we tried to discuss one of the main elements of SOX that is the Public Company Accounting
Oversight Board or PCAOB in detail.
We hope you will find the report informative.
Sincerely,
Accountants’ Kernel

Acknowledgment
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In performing our report, we took the help and guideline of some persons, who deserve our greatest
gratitude. The completion of this report gives us much Pleasure. We would like to show our gratitude to
Md. Rezaul Karim sir, for giving us a good guideline for report throughout numerous consultations. We
would also like to expand our deepest gratitude to all those who have directly and indirectly guided us in
writing this report.
We also want to mention that to complete the report we took various help from various online sources and
mainly from Wikipedia. We have collected most of the information about SOX and PCAOB from this site.
We have also used other sources to collect information and tried to use that information with proper
references.

Many people, especially our classmates and team members themselves, have made valuable suggestions on
this proposal which inspired us to improve our report. We thank all the people for their help directly and
indirectly to complete our report.

On behalf of team members

Ahmed Sabuj

Table of Content
Letter of Submission …………………………………………………………………………………03

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Acknowledgement……………………………………………………………………………………04
Executive Summary……………………………………………………………………………….… 06
Introduction of Sarbanes Oxley Act 2002……………………………………………………………07
History & Context of Sarbanes Oxley Act…………………………………………………………...07
Major Elements of SOX……………………………………………………………………………...08
Public Company Accounting Oversight Board (PCAOB)……………………………………………………....08

Auditor Independence……………………………………………………………………………………………09

Corporate Responsibility………………………………………………………………………………...………10

Enhanced Financial Disclosures…………………………………………………………………………..…….10

Analyst Conflicts of Interest………………………………………………………………………………….....10

Commission Resources and Authority………………………………………………………………………......11

Studies and Reports……………………………………………………………………………………………...11

Corporate and Criminal Fraud Accountability…………………………………………………………………..11

White-Collar Crime Penalty Enhancement……………………………………………………………………...12

Corporate Tax Returns………………………………………………………………………………………..…12

Corporate Fraud Accountability………………………………………………………………………………...12

Major Provisions of the Sarbanes Oxley Act………………………………………………………..13

Sox Compliance Checklist…………………………………………………………………………..20
Analyzing the Cost-Benefit of Sarbanes Oxley……………………………………………………..21
Cost of Sarbanes Oxley Act……………………………………………………………………………….........21

Benefit Sarbanes Oxley Act……………………………………………………………………………………22

Criticism and Praise of SOX………………………………………………………………………..23

Public Company Accounting Oversight Board (PCAOB)
Introduction to PCAOB…………………………………………………………………………….25
Organizational Overview………………………………………………………………………..….25
Mission, Vision & Core Values……………………………………………………………….........26
Goals & Objectives of PCAOB…………………………………………………………………….27
Powers of PCAOB………………………………………………………………………………….29
Conclusion………………………………………………………………………………………….29
References……………………………………………………………………………………….…30

Executive Summary

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Sarbanes Oxley Act is created in 2002 to establish proper rules and regulations of auditing and financial
regulations for the public company. Corporate scandals like Enron, Arthur Anderson, Tyco, etc. are the
reasons that led to forming Sarbanes Oxley Act. Sarbanes Oxley Act deals with issues such as Public
Company Accounting Oversight Board, Corporate responsibility, Auditors independence, financial
disclosures of statements, conflicts of interest, resources of commission, accountability related to corporate
frauds, studies on reports, white-collar crime penalties, corporate tax returns, etc. SOX creates PCAOB to
oversee the overall auditing issues.
PCAOB has certain goals and objectives that are in harmony with SOX. PCAOB exercises its power to
attain those goals and objectives. SOX has some key provisions such as corporate disclosures control, illegal
effects on conducting the audit, off-balance-sheet related disclosures, evaluation of internal control and cost
of compliance, criminal penalties for influencing investigation or auditing, protection of whistleblowers,
criminal penalties for fraud certification.
SOX has certain costs such as high audit fees, lower profits in the early stages, etc. It has certain benefits too
such as a better internal control environment, discloses crucial information to shareholders, better audits,
efficient financial reporting, minimizing human error, and restore consumer confidence. The benefits of
SOX overweigh the costs involved. Though SOX has certain criticism due to rigid rules, many investors and
companies praise it highly. Sarbanes Oxley Act improves the environment of audits and financial
regulations of the United States.

Introduction of the Sarbanes Oxley Act, 2002

On July 30 of 2002, the U.S. Congress passed an act to protect the investors from the fraudulent financial
reporting done by business organizations. This act is known as the Sarbanes-Oxley Act of 2002 (SOX). The
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act was named after Senator Paul Sarbanes (D-MD) and Representative Michael G. Oxley (R-OH), who were
the bill sponsors.
The Sarbanes-Oxley Act of 2002 came as a reaction to the financial frauds that happened in the early 2000s
which includes Enron, Tyco International, Adelphia, WorldCom, etc. The stock price of these corporations
went down because of the scandals.
These major accounting scandals shook the confidence of the investors in the credibility of financial
statements. A change in the rules for the business organizations in the U.S. became essential.
The main objective of the SOX Act was to fix auditing
of U.S. public companies because of the poor auditing
of the corporations done intentionally to make
money.
The SOX Act promised some long term benefits such
as- low risk of thefts and frauds, more reliability of the
financial statements, transparency, and accountability
of the audit reports.
To make sure the organizations get the benefits, a
quasi-public institute was created. That institute is the
Public Company Accounting Oversight Board or
simply PCAOB. Pic: The U.S. President signing the bill of
Sarbanes-Oxley Act of 2002

History & Context of

Sarbanes Oxley Act[i]
Several factors generated the things during which several company frauds occurred before 2002. Those
occurrences weren’t known correctly because of the dearth of proper laws and tips. In 2001,
A extremely advertised hoopla occurred at Enron, Associate in Nursing yank based mostly company, and
therefore the actual dissolution of more Anderson, that was one amongst the 5 biggest audit
& business corporations within the world. The scandal of Enron Corporation's light-emitting diode the
creation of the Sarbanes Oxley acts in 2002. This act was shaped to forestall the dishonest occurred in a
very company & facilitate auditors to try to their job ethically. As most dishonest cases occurred with the
assistance of auditors therefore auditing ought to be perfect. during this case, SOX is incredibly effective to
form everything unflawed.

What really happened before sox?
Before the publication the Sarbanes Oxley act auditing corporations were self-regulated. there have
been some slack rules & rules that any irregularities in auditing were potential. moral problems area
unit vital in auditing however those scandals were whole adverse to ethics.
Auditing corporations performed varied activities for purchasers that shouldn't be performed by an Associate
in Nursing auditing firm. Most of the consulting agreements were way more tempting than auditing
engagement. Then auditors might do any hot task for purchasers that might ne'er be appeared.
Any quite irregularities might be done because of an absence of correct rules and rules.

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Timeline of forming Sarbanes Oxley act
The House passed Oxley's bill on Gregorian calendar month twenty-four, 2002, by a vote of 334 to ninety.
The House then prescribed the “Cartago “corporate and Auditing answerableness, Responsibility and
Transparency Act” to the Senate banking committee with the support of President Saint George w bush.
At that point, the Chairman of that Committee, legislator Paul Sarbanes, was creating his proposal, Senate
Bill 2673.
Senator Sarbanes's bill passed the Senate Banking Committee on Gregorian calendar month eighteen, 2002,
by a vote of the members. On June 25, 2002, WorldCom exposed it had immoderate its earnings
by over $3.8 billion throughout the past 5 quarters, primarily by not suitably accounting for
its operational prices. legislator Sarbanes submitted Senate Bill to the total Senate that very same day, and it
passed but 3 weeks shortly Gregorian calendar month fifteen, 2002.
The House and therefore the fractional monetary unit shaped a conference committee
to assemble the variations between Sen. Sarbanes's bill and Oxley's bill. The conference committee relied
heavily on Sarbanes 2673 and “most changes created by the conference committee strong the prescriptions
of Sarbanes 2673 or adscititious new prescriptions. The Committee approved the ultimate conference bill
on Gregorian calendar month twenty-four, 2002, as “the Sarbanes Oxley Act of
2002”. consecutive day, each home of Congress voted on that while not ever-changing, manufacturing an
amazing margin of finish.
On July 30, 2002, President Saint George W. Bush signed it into law. From that point, it came into action
as a suggestion for preventing any quite fraud and wriggle.

Major Elements SOX

From previous scandals, the law falls came to light and for preventing those, the Sarbanes-Oxley Act is
enacted. There are 11 major elements in SOX. Sarbanes-Oxley Act contains a total of 11 titles and sixty-six
subtitles. Every title contains several subsections, which deal with a particular topic and particular business
transaction. All titles are supposed to keep a balance of interest between parties and to make financial
reporting true and fair. There are some necessary warnings and actions mentioned against irregularities to
the prescribed rules. The responsibilities of the involved parties or bodies are specifically mentioned here.
Also, the Securities and Exchange Commission is supposed to take proper steps for both the case of creating
regulations and to define the way of how public Corporations are to comply with the law. The prescribed
titles deal with several party's codes of conduct so that they could have enough independence while being
liable for what they reporting and how they make their association. This maintains a balance between
responsibility and liability which helps to make sure that every party is independent and liable to the level
which is necessary to keep every party neutral.

1. Public Company Accounting Oversight Board (PCAOB)

Title I contains nine sections. The PCAOB is a private sector non-profit Corporation to supervise the
Accounting professionals and the audits of the public companies. The main objectives of PCAOB are
protecting the investors and public interest. Those objectives are implemented through the unbiased, true,
and fair audit report. A central control oversight board is also made by PCAOB. This board's scope of
working is a registration of auditors, setting the processes for compliance audits, making polices. In general,
Title 1 aims to oversee public companies.
This section deals with the establishment and operation of the Public Company Accounting Oversight
Board. To continue operation and providing accounting services, it requires all Public Accounting Firms to
register with the Board. The Public Company Oversight Board is liable for the Quality Controls of the
auditing of the accounting firm is important as previous negligence lead to a big scandal of Enron in which
Arthur Anderson was the Accounting firm. There was lacking in the quality control of Arthur Anderson's
auditing. The Board has the power to review public Accountants and can make investigations of accounting
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firms. The board has the power to enforce its standards if any violation or attempt to fraud cane to light.
Overall, the Public Company Oversight Board was created to set proper standards by which shareholders'
interest is protected.

2. Auditor Independence
Title II contains nine sections. This sets standards for the independent external auditor. The main purpose of
Title II is to ensure the least conflicts of interest. Some specific services which are not part of audit service
are declared illegal. Arthur Anderson is a proper example here to look back, in which Accounting firms got
involved in fraudulent activities just to make the company benefitted in an unethical way through illusionary
audit reports. So, this title is supposed to ensure the independence of the auditor. So that the auditor is
warned enough to get them involved in any inappropriate motive of the client. Auditor independence makes
the possibility higher that the auditor will do his work independently remaining unbiased. And it’s likely that
an independent and unbiased auditor will report the exact scenario of the required financial statements. Title
II also mentions the proper interaction that should be between the Audit firm and Audit Company of that
publicly-traded company. And it also mandates that Auditor rotation should occur after the specified time.
All this covers the auditor and Audit committee's interaction while ensuring proper independence to the
auditor at the same time giving him reasonable warning after providing the regulations. It mandates that the
registered external auditor can not provide certain non-audit services to publicly traded companies. Some
regulations, standards, and guidelines are provided by the Securities and Exchange Commission and Public
Accounting Oversight Board. The extent OD services that an auditor may perform while remaining
independent and unbiased is mentioned here.
If the auditing firm is biased or becomes dependent on any party then there automatically arises a conflict of
interest.
Nine prohibited activities are specifically reviewed in this title. These nine sections are prohibited for the
accounting firms in case of performing audit services. Those are:
1. Bookkeeping or preparing financial statements
2. Design of a financial information system
3. Valuation Services
4. Actuarial Services
5. Internal Audit
6. Managerial Tasks
7. Broker, dealer, or investment banking services
8. Legal or expert services
9. Any other services that the board didn't permit
Prohibition of these nine activities ensures that the auditor cannot do any of this works to get involved with
the company. The auditing firm is supposed to do an only external audits to remain unbiased and
independent.
An Auditor cannot be a part of any management functions of the client company and this separates the
interests of the client and the auditor. And it prevents the auditor to provide other services except external
auditing.
This title also requires that all auditing and non-auditing services excluding the nine prohibited activities
must be pre-approved by the audit committee.

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The last section mandates that a Public Accounting Firm can not serve the same client for more than five
years in a row. This provision makes it safer than the auditor can not get involved and report in favor of the
client company being biased for a long time.
Title II is all about the independence of the auditor and the aids to keep independence. It will protect the
interest of the shareholders.

3. Corporate Responsibility
The third title emphasized to establish some guidelines for corporate responsibilities. It contains eight
sections and it states that senior executives should be liable for the authentication and should ensure that the
whole scenario is presented and revealed enough from the required financial reports. It controls the
interaction of external auditors and corporate audit committees. And it defines the liability for the related
officers for the authenticity and the acceptability of the financial statements. It also describes the penalties
for non-compliance. Audit Committees of publicly traded companies are provided with certain guidelines.
As the audit committee is entitled to the appointment, compensation, and oversight of the work of a public
accounting firm. Individuals can pass the blame if they get involved in fraudulent activities by telling that
they were unaware as it collectively works in the committee. Normally it is assumed that the persons who
are part of both Board of Directors and Audit committee are liable for the fraud.

4. Enhanced Financial Disclosures

It contains nine sections. And deals with the enhanced reporting requirements. Which includes off-balance-
sheet transactions, Pro-forma figures, and stock transactions of corporate officers. To ensure the authenticity
of financial reports, internal control should be good. And there should be audits and reports to be ensured by
the control system. To provide the accuracy and informativeness of disclosures the control system should
review and report it timely. If any change arises in the financial condition it should be shown properly. To
make disclosures contain sufficient information about financial statements it should be made by following
some rules prescribed in this title. The accuracy and informativeness of financial disclosures are the main
focus here. All the prescribed rules and standards are made on the basis of the previous loofalls for which
previous scandals happened. So that no further attempts can be taken to make fraud by using those loofalls.
Off-balance sheet transactions can be used wilfully to make fraud. As by misrepresenting off-balance-sheet
transactions the debt that a company actually has can be concealed.

5. Analyst Conflicts of Interest

It deals with only one section. And it’s about some measures set to restore investor confidence in reporting
of securities. There are some codes of conduct for securities analysts so that by using those conducts
analysts can represent financial reports in a systematic way and reduce the possibility of misrepresenting
financial statements. Again disclosures should be given on specific cases where conflicts may arise. When it
can be ensured that proper analysis and disclosures are given, the investor’s confidence will rise.

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6. Commission Resources and Authority
Title VI contains four sections. It determines practices to restore investor confidence in securities analysts.
Those practices include the Securities and Exchange Commission's authority to remove anyone who holds
the position of a broker, advisor, or dealer for some specific activities.
It also mentioned the provisions to support the commission and to implement the enforcement of its
authority's compensations, information technology needs, and resources sacrificed for the aid in the
oversight which qualified professionals are entitled to get lawyers, accountants, or financial professionals
who reported true and fair scenario of a company are called qualified professionals.
The next section describes if any violation of the provided rules is found then the Securities and Exchange
Commission can remove or eliminate that specific person who is in the position.
There’s a bar by the Federal court in granting penny stock. Penny stocks are priced very low. And there may
cause abnormal fluctuations in the price of penny stock. So it can be another look all and the company can
misrepresent the penny stock price and securities fraud can be made.

7. Studies and Reports

It deals with some specific studies and reports those are supposed to be performed by the Securities and
Exchange Commission and the Comptroller General. Those studies and reports are provided to lessen the
chances that the authorities or agencies are not making any illegal deals in the securities market. Authorities
like Public Accounting firms, Investment banks, and Credit Rating Agencies may make illegal cooperation
while serving to the publicly traded companies. To make good to a specific party those agencies can assist
but in large it will badly affect all the parties.
This title emphasizes the previous scandals in which the association of Credit Rating Companies, Public
Accounting Firms, Investment Banks, and other authorities co-operated with the fraudulent reporting. Here
provisions are made based on those violations. This study reviews both the violation of securities law and
the enforcement of the act. The areas of reporting in which these types of fraud can be made are identified in
this study. Based on the investment banks and their role of association with companies to make any
inappropriate, misrepresentation, or any attempt to make any fraud, there's a special study in Title 7. Here
the Sarbanes Oxley Act tries to lessen the scope of manipulation by Investment banks that happen
previously in the case of the Enron scandal.

8. Corporate and Criminal Fraud Accountability

It contains seven sections. Title VIII is also known as the “Corporate and Criminal Fraud Accountability
Act of 2002”. Some certain penalties for misstatement and misrepresentation are mentioned here. These
penalties provide a previous warning for all the bodies.
At the beginning of this title, it is mentioned that if anyone knowingly manipulates, conceal or misrepresent
anything related to Federal Investigations or bankruptcy proceedings, the person should be sentenced to
imprisonment for up to 20 years.
The next section deals with the elimination or destruction of audit records. It id mentioned that, after
finishing the fiscal period for which the audit has been performed, it should be kept by the accountant for at
least five years.

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In previous scandals, it is found that they destroyed previous documents of audit reports which contained
detailed information about the internal financial condition. It is mentioned that violation of keeping the audit
reports for at least five years is subject to a fine and imprisonment for up to ten years. Arthur Anderson
destroyed huge documents of audit reporting.
The next section is titled “Protection for employees of public limited companies who provide evidence of
fraud”. This section mentioned the rules about the treatment of such employees and the Penalties are there,
those are supposed to punish the persons who violate the rules.
To strengthen the whistleblower, this section prohibits any type of threatening, discrimination, or harassment
against the person who plays the role of whistleblower. This section serves as a protection and safeguards
for the whistleblower who reports questionable business activities to the oversight committee.
If the whistleblower had to go through any consequence for his role then the employee is supposed to get all
relief to compensate. This title includes a section which deals with setting a punishment of a fine and
imprisonment up to 25 years for knowingly and consciously attempting fraud.

9. White-Collar Crime Penalty Enhancement

Title IX contains 6 sections. Its purpose is to enhance criminal penalties for white-collar crimes. This section
is also called the “White-Collar Crime Penalty Enhancement Act of 2002”. It recommends stronger
sentencing guidelines.
The next three sections 9, 10, and 11 deal with White-Collar Crime Enhancement, Corporate tax returns, and
corporate fraud.
This title adds failure to certify corporate financial reports as a criminal offense, and it encourages stronger
sentencing guidelines. It mentions that the attempt and conspiracy of fraud should be counted as the
penalties for the offense itself.
This title increases penalties for many types of fraud like mail and wire fraud is supposed to be sentenced for
a maximum of 20 years and a minimum of 5 years. Violation of the employee retirement income Act of
1974 is supposed to find the liable party for a minimum of 100000 and maximum500000 dollars and
imprisonment of up to 10 years and a minimum of 1 year.
Title nine then requires a review of the sentencing guidelines. And it also requires to certify financial reports
by the corporate officers.

10. Corporate Tax Returns

Title ten simply mentioned that Chief executive officers should sign the Federal Income Tax return of a
Corporation.

11. Corporate Fraud Accountability

Title 11 is also known as the “Corporate Fraud Accountability Act of 2002”. There are some additional
guidelines about the rules and punishments for fraudulent corporate activities. It also reviews sentencing
guidelines and enhancing their penalties and punishment.

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Major Provisions of the Sarbanes Oxley Act:
Sarbanes Oxley Act Section 302:
Corporate Responsibility for Financial Report
The substance of Section 302 of the Sarbanes-Oxley Act expresses that the CEO and CFO are legitimately
answerable for the precision, documentation, and accommodation of all money related reports just as the
inner control structure to the SEC. A summary of the Sarbanes-Oxley Act of 2002 is given below:
(1) the signing official will evaluate the report;
(2) in view of the official information, the report does not contain any false explanation of material reality or
exclude to express a material certainty fundamental so as to offer the expressions made, considering the
conditions under which such proclamations were made, not deceiving;
(3) in view of such official’s information, the fiscal summaries, and other monetary data remembered for the
report, genuinely present in all material regards the budgetary condition and consequences of activities of
the backer as of, and for, the periods introduced in the report;
(4) The signing officers,
a) are liable for building up and keeping up inward controls;
b) have assessed the viability of the backer’s interior controls starting at a date inside 90 days preceding the
report; and
c) has introduced in the report about the effectiveness of the internal control system of the company as of
that date;
(5) (a) all huge inadequacies in the structure or activity of inner controls which could unfavorably influence
the guarantor’s capacity to record, measure, sum up, and report money related information and have
recognized for the backer's inspectors any material shortcomings in inside controls; and
(b) any extortion, regardless of whether material, that includes the executives or different workers who have
a noteworthy function in the guarantor inside controls.

Section 303 of the Sarbanes–Oxley Act

Improper Influence on Conduct of Audits
Section 303 of the Sarbanes Oxley Act States that:
(A) SEC establishes laws and regulations for the protection of the investors. If any person influences,
directs, forces the public accountant to make a financial report which is materially incorrect and misleading,
he or she will be found guilty and it is an unlawful act.
(B) The commission has the authority to enforce any act or rules and regulations for the civil proceedings.
A commission can make change any rules relating to this aspect.
(C) The provisions expressed in (a) should be included in addition to the issued laws and regulation of the
commission and it should not supersede or quash the other laws.
(D) The commission shall –
(1) Propose the rules and regulations within the 90 days of the enactment of this act.
(2) Issue the rules and regulations within the 270 days of the enactment of this act.

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Section 401 of the Sarbanes Oxley Act
Disclosures in periodic reports (Off-balance sheet items)
Introduction:
Off-balance sheet, a hidden lending effect, commands assets or liabilities that are not presented on a
company's balance sheet. However, these are still business assets and liabilities. These are usually those who
do not own or have direct responsibility for the business. The off-balance sheet item is an important factor
for investors when assessing the profitability and overall financial condition of a business.

Off-balance sheet items and the Serbian Oxley Act:

The Enron scandal, which is a major issue, drew public attention to the use of off-balance sheet companies.
In Enron's case, the company would create an asset, such as a power plant, and immediately claim the
expected profit on its record, even though it did not deduct a single penny from it. If the proceeds from the
power plant fall short of the expected amount, the company will move the assets to an area with a balanced
sheet where no damage will be reported. As a result, legislators drew attention to this under Section 401 of
the Sarbanes Oxley Act 2002. 401 (listed in Extended Financial Disclosure in Title IV) deals with financial
statements and their accuracy and presentation requirements. In a way that does not contain false statements
and does not allow the provision of content information. Such financial statements should include all
material commitments, obligations, and transactions.

Overview of Section 401:

Financial statements prepared and issued by an organization must be presented accurately and fairly and free
of false reporting. These financial statements must also include any material commitments or transactions.
The Law Enforcement Committee was to investigate and report on the scope of off-balance-sheet
transactions leading to transparent reporting. The Panel also needed to determine whether generally accepted
accounting principles known as GAAP or other regulations would lead to fair and accurate financial
reporting.

Section 404 of the Sarbanes Oxley Act:

Management Evaluation of Internal Controls
Section 404 is the most confusing, usually challenging, and it is expensive to update all Sarbanes Oxley Act
segments for compatibility. All annual budget reports should include an internal control report indicating
that the administration is responsible for ensuring that the board of directors assesses the adequacy of the
"satisfactory" internal control structure and control structure. The shortcomings in this control should also be
taken into account. In addition, external auditors should confirm the organization's suitability. Managers
report that internal accounting controls are in place, functioning, and followed.

Taken directly from the 2002 Sarbanes-Oxley Report for Section 404:
(A) Required Regulations: The Commission will recommend regulations that require any annual reporting
required under Zone 13 (a) or 15 (d) of the US Stock Exchange Act. 1934 Internal Control includes a report
that:

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(1) Expresses the responsibility of the Board of Directors to establish and maintain an internal control
structure and adequate monetary reporting methods; and
(2) Include, at the end of the Guarantor's most recent financial year, an assessment of the adequacy of the
Promoter's internal control structure and methods for handling cash details.
(B) Internal control evaluation and report: With respect to the internal control evaluation required in the
letter, any registered auditor who prepares or issues an audit report for the issuer must confirm the
evaluation carried out by the company's management and report on it. Exhibitors Grading made under this
paragraph will be conducted in accordance with the skills assignment standards issued or approved by the
Council. Such certification is not the subject of a separate mission.

A Case Study on Section 404 of This Act:

Beta is a part of the consulting division of a large US-based global professional services group with
operations in over 25 countries including the UK. Beta initiated a formal SOX program in the US soon after
the Act was passed in 2002. Although SOX legislation was monitored before it was passed, little in terms of
action was taken until it became law. In early 2004, practical implementation started for Beta in the UK.
There are four senior individuals on its SOX program including the Regulatory Accountant, Finance
Director, SOX coordinator, and US liaison. The US Global Chief Financial Officer, who is also a member of
the global finance team, is responsible for global SOX-US liaison. The Beta UK SOX team comprises the
UK CFO and CEO and the four individuals mentioned above. Beta has used internal resources and has two
people dedicated to each major business cycle. There were twelve individuals involved in SOX for Beta UK,
including the top team.
The organization took a program management approach to SOX implementation. An audit program was
initiated to develop questionnaires covering control objectives, control activities, test status, source,
assessor’s name, sample size, and overall status. This was done for five major business processes, i.e.
revenue, expenditure, company-level controls called ‘Tone from the Top’, treasury and payroll, and
financial reporting. The company-level controls applied are pervasive controls which included the level of
internal oversight, operations of the board, CEO remit from the board, and delegation of power from board
to subsidiary committees. The tasks in 404 implementations involved developing control narratives, defining
systems of internal control and control objectives, testing conclusion, monitoring the project in terms of
percentage of completion, and assessing whether or not the Beta UK was in compliance; essentially covering
404 from start to finish. IT was crucial for demonstrating system compliance. It expanded on control
narratives developed by the SOX team and played a fundamental role in defining how the firm operated its
internal controls. Beta UK created templates for documenting processes and controls and circulated these to
member firms within the Group.
The UK IT organization was informed that, although they reported to the Global IT organization, the overall
sponsor for SOX implementation is the Global Finance function based in the US. The UK IT organization’s
role was to support Global Finance in ensuring the accuracy and validity of information and to test and
remediate controls. In terms of Section 404, the Global IT function, also based in the US, developed an
assessment method for IT controls based on the COBIT framework. Global IT sent this assessment to
Beta’s IT organization in the UK. Concurrently, the UK IT organization was in the process of changing all
its back-office systems, processes, architecture, and infrastructure to a new data center. The UK IT
organization’s challenge was to meet both SOX and transfer deadlines. They liaised with Global IT for
implementing Section 404 within the UK firm although there was little direct contact with the UK business.
Beta UK and its IT organization did not undertake any research as they were driven mainly by time
pressures. The UK SOX team concluded, based on internal assessments, that the Beta UK has a robust
system of internal controls. They identified no significant areas where there is a need to introduce new
controls. From discussions with the business, the UK SOX team became aware that the communication of
15
Section 404 standards and policies needed to be improved. Beta UK has put in place policies to ensure the
latest standards and policies are communicated. In a small number of instances, the UK SOX team identified
areas where Beta could enhance its controls. The changes the UK SOX team made evolved through testing
are a direct result of Section 404. They are aiming to achieve best practice and consistency across their
business processes.
Knowledge building is evident in the staggered implementation of Section 404. Most of the knowledge
building occurred in the US and was then adapted to suit non-US subsidiaries. Given their time pressures,
UK managers realized that the information and experience of the US could be applied to support their own
divisional SOX strategy. Their solution was a hierarchical design that linked SOX focus areas to project
content.
Knowledge was deployed in this case by means of the intranet and the use of a web-based tool that aided the
dissemination of information. The organization created a Sarbanes Oxley space on its intranet to act as a
repository for the 404 information. This contained the latest guidance from the PCAOB, procedures that
were to be adopted across the organization, general information about SOX and s404, and its impact on the
organization. In the UK, the intranet was accessed mainly by people who had some direct interest in SOX
and Section 404 compliance; hence, it was used by a small number of people. According to the Finance
Manager:
“The information on the intranet was useful because it was up to date and we could direct other people who
wanted information about SOX to it. It was a good way of creating awareness”.
Another knowledge deployment tactic was the deployment of knowledgeable individuals across divisions to
assist with the implementation. About four or five individuals were sent to the US and Australia from Beta
UK and Beta UK had the same number of people transferred from there.
Beta used subsidization in allocating funding to implement 404 as evident in procuring a web-based system
for documentation and monitoring. Funding was made available in the form of peoples’ time that was used
for implementation. Beta UK made the services of the intranet coordinator available for the organization as a
whole and employed existing resources. As Beta UK perceived compliance to SOX as ‘necessary’, they
applied subsidization as a power-based action to ensure implementation progress.
Mobilization took the form of an awareness drive aimed at key individuals, rather than general organization-
wide awareness creation. This implementation can be seen as formal, and actions of an influential nature
were barely considered. The implementation of Section 404 was mandated and linked strategically to UK IT
Organization’s divisional project activity. Traditional oral means of communication in the project domain
were replaced in favor of documentation. The focus of the UK SOX team was on getting consistency in
approach across the organization.
Innovation directives are deployed extensively. Managers implementing 404 took the view that people
affected by the new standards would have little option but to change as Section 404 compliance was
mandatory. Information about 404 projects, such as the stage of completion, templates used, and key
individuals involved, etc. had to be published on the intranet, and staff under the jurisdiction of divisional
and functional managers were involved in documentation and testing. The view of the organization was that
as information on Section 404 compliance was important they would have to demonstrate it. (Sall, n.d.)

Section 802 of the Sarbanes Oxley Act:

Criminal Penalties for Influencing US Agency Investigation/Proper
Administration
Section 802 expresses that:
16
Any person who makes a false entry in the records of the company and impede the investigation of proper
authorities get fined and imprisonment of a maximum of 20 years or both.
This section also states that any auditor or accountant who willfully or deliberately breaks the rules of
maintaining audit papers and review for 5 years should get imprisonment for 10 years. ("☑ SOX Section 802:
Criminal Penalties for Altering Documents", 2020)

Section 806 of the Sarbanes Oxley Act:

PROTECTION FOR Whistleblower Who Discloses Information of
FRAUD
Section 806 of the S0X protects the employees who disclose information about corporate fraud and illegal
activities. These employees are known as whistleblowers. Section 806 prohibits companies to oust,
discharge whistleblowers. Recently a federal court forbids to disclose the identity of the whistleblower. The
corporate fraud or illegal activities can be occurred by using different methods. Whistleblowers inform the
ethical committee or any others appropriate person.

The whistleblower can inform authority if the followings things have happened:

(1) Fraud relating to technology such as mail, wire fraud.

(2) Fraud against investors which is prohibited by the federal law

(3) Frauds which are against the rules and regulations of the SEC. ("☑ SOX Section 806: Sarbanes-Oxley
Whistleblower Protection", 2020)

Section 806 protects the employees, officers, or other persons who are:

(1) A publicly traded listed company

(2) A subsidiary of a publicly listed company

(3) Organizations which give ratings of the company’s ("☑ SOX Section 806: Sarbanes-Oxley
Whistleblower Protection", 2020)

Section 806 also states some remedies. Those are:

(a) In the case of discrimination, the employees should restore to their original position.
(b) The salary should be given to the person with interest
(c) Indemnification should be given for the litigation cost, attorney fees, etc. ("☑ SOX Section 806: Sarbanes-
Oxley Whistleblower Protection", 2020)

Section 906 of The Sarbanes Oxley Act:

17
Criminal Penalties for CEO/CFO Financial Statement Certification
Section 906 states that:
(a) Confirmation of Financial Statements- The periodic report which is filed by the issuer should be
accompanied by the written statement of the CFO and CEO of the issuer

(b) Content- The periodic report should be in harmony with the act of the SEC and the report should fairly
present the financial position and performance of the entity in all material respects

(c) Criminal Penalties- A person Who certifies the report as a fair report but he knows that the report is not
accompanied by the rules and regulation will be fined a maximum of $1,000,000 or 10 years of
imprisonment or both.

(2) A person Who deliberately certifies the report as a fair report but he knows that the report is not
accompanied by the rules and regulation will be fined a maximum of $5,000,000 or 20 years of
imprisonment or both. ("☑ SOX Section 906: Corporate Responsibility for Financial Reports", 2020)

Section 1107 of the Sarbanes Oxley Act:

Criminal Penalties for Retaliation against Whistleblowers
Section 1107 expresses that:

Any person who tries to attack the whistleblower for disclosing truthful information to the proper authority
will be fined as well as get imprisonment of 10 years or less.

A Case Study on the Sarbanes Oxley Act:

Aramark, with $14.4 billion in revenue in 2016 and operations in 22 countries, first went public in 1959 and
then went private in 1984 to thwart a hostile takeover. Then it went public again in 2001. But at that time,
Congress had not yet passed the Sarbanes-Oxley Act of 2002, and so when Aramark went public a third time
in December 2013 (having privatized again in 2007), it was a bit of a rude awakening from a SOX
compliance standpoint.

“Management wasn’t used to the scrutiny of the external auditors in this area,” Patrick Morgan, Aramark
assistant vice president of financial controls, said during a recent Webcast. The dramatic increase in the level
of documentation required by the control owner, in addition to having to suddenly reevaluate its risk and
control matrices, made Aramark’s first year of SOX compliance in fiscal year 2015 a “bumpy ride,” he said.

As Morgan candidly put it: In a private-company setting, keeping risk and control matrices up-to-date and
making sure they are widely distributed, generally is not approached with the same rigor as a public
company. “Reinstalling that rigor was a process and a journey,” he said.

Compliance with SOX Section 404, specifically, has proven arduous and costly. Section 404 requires,
among other things, that external auditors attest to the effectiveness of the company’s internal control over
financial reporting in accordance with the Public Company Accounting Oversight Board’s broad interpretive
standards.

“I don’t think you’ll ever see SOX go away,” Morgan said. However, he said, the amount of pressure being
placed on companies today needs to be toned down. “From my audit experience and what we are doing here
at Aramark, companies are doing a lot and investing a lot to do the right thing.”

18
For chief audit executives and internal auditors, the real pain point comes from the pressure that the PCAOB
puts upon external audit firms, “which they then press upon their clients about the accuracy and completion
of reports,” Morgan said. Aramark’s external auditor, KPMG, “relies on a significant amount of our testing,”
he added, and so having confident and independent testers is invaluable.

Aramark, for example, has a financial control team whose members include former public accountants. At a
high level, this team is a subset of the internal audit group for purposes of independence. For other public
issuers, Morgan recommended having in place a team of experts who know the audit standards inside and
out, who can speak the lingo of external audit partners, and who can work with external auditors to resolve
any type of internal control matters.

For multinational companies, specifically, a significant compliance risk intrinsically comes with the number
of people who are performing testing globally. For example, Aramark is both a food company and uniform
business, each with its own business processes and IT controls in every country of operation, including in
Chile, China, Germany, and the United Kingdom, among others. Each location has a corporate controller
and/or a SOX leader responsible for maintaining the risk and control matrix and providing access to the
audit group to go and assess the accuracy and the implementation of those internal controls.

Such disparate controls, however, made Aramark’s first go-around with SOX compliance not as exacting of
a process as it needed to be. Sending out requests for status updates on control assessments would elicit
responses like, “We’re 30 percent done with testing,” Morgan said, but it was different to validate the
accuracy of those status reports for each line of business and location.

“Getting access to testing in a spreadsheet environment isn’t easy,” he added. Nor could it be clearly
determined whether risks had been addressed or even assessed. Meanwhile, the company was devoting
internal resources to the effort and incurring significant cost with its co-source partner, PwC, which
supplements Aramark’s control testing.

SOX compliance automation. That’s when the decision was made to move away from manual processes and
invest in an integrated risk management solution to help streamline the cost of SOX compliance. So, in
2015, Aramark invested in Riskonnect’s SOX technology.

The first step in Aramark’s SOX compliance automation journey was deciding what needed to be
automated. Morgan said that required incorporating Aramark’s risk and control matrix into the SOX solution
itself, to get a holistic picture of the company’s risks, its controls, and how those link together.

The next step was to automate workflow by creating the roles of testers and managers. It was also important
to ensure that control owners could see their risk and control matrix and be able to submit their supporting
documents, without also seeing the testing. There needed to be that segregation of controls.

Issues management was another focus for Aramark when building its SOX integrated risk management
solution, ensuring that managers could automatically receive notification from control owners when issues
arise, documenting the acceptance of those issues, and then being able to update the status of remediation
efforts. Being able to track the status of internal control testing was also a necessity.

At a broader senior-management level, having dashboards available—whether daily, weekly, biweekly, or

whenever necessary—also has its benefits. In this way, the chief accounting officer, for example, can clearly
see how the lines of business are performing in terms of SOX: “Here are current deficiencies that need to be
[addressed]. Here is who we should be talking to. Here is where you should be putting the pressure,”
Morgan said.

Cost savings. Through automation, interaction with Aramark’s external auditor, KPMG, has been reduced
significantly, due to the quality and consistency of testing, Morgan explained. “The work is cleaner. It’s
19
more timely, and it’s easy for [KPMG] to access,” he said. “Auditors can reduce their touch on the business.
That’s the real value.”

Furthermore, external auditors don’t have to constantly ask about the status of reports. “We can now have
real conversations on real issues,” Morgan said. 

The same benefit—having real conversations about real issues—has been realized from a corporate
governance perspective; instead of dedicating what seems like the entire year to SOX 404 testing, now tests
are performed at targeted times of the year. This has allowed the team to devote more time and energy into
thinking about how they can make process improvements and become a better business partner.

Finally, in addition to making the process more efficient and accurate, SOX compliance automation also
helps build accountability by providing a window into how the performance levels of control testers stack up
against one another, Morgan said.

Together with processes, policies, and procedures, every company—public and private—needs to have
robust internal controls to effectively prevent material misstatements and prevent SOX 404 compliance
violations. “If you have that,” Morgan said, “you’re going to be more effective.” (Jaeger, 2020)

SOX Compliance Checklist

Here is the SOX compliance Checklist:

Number Objective Safeguards

1 Hinder Data Implement systems that track links to the system used for
Tempering financial data and detect suspicious contact attempts
2 Record Time Frames Implement systems that time-mark all financial and other data
of Main Activities related to SOX clauses and record deadlines for major incidents.
Keep this data in a centralized and secure location and encrypt it
to avoid tampering
3 Configure accessible Implement systems that access files, databases, and tracks from
settings to track. virtually any organizational source or retrieve data from tracks
and edit it
4 Protect testing, Implement systems that can report daily to your organization's
validation, and selected managers that all SOX controls are working effectively.
auditor disclosure The system must use permissions to gain access to the auditor so
that reports and data can be viewed without modification.
5 Report on the Implement systems that generate information on data
appropriateness of transmitted, important messages and alerts, security incidents
the safeguards that occur, and how they are handled
6 Identify Security Implement systems that analyze data, identify signs of security
Infringements infringements, and automatically updates the event to the
management system to create critical alerts
7 Disclosure of Implement systems that document security breaches and allow
Security Violations security personnel to record the magnitude of each subject.
and Failure of Allows the auditor to view the report to determine which
Security Check to security incidents have occurred, which incidents have been
Auditors successfully reduced, and which have not.

20
Analyzing the Cost-Benefits of Sarbanes-Oxley
A significant body of educational question and opinion exists relating to the prices and advantages of SOX.
in step with Section 404 of the act, which needs management and therefore the external auditor to report on
the similarity of a company’s control on money news is usually separated for analysis.

According to a 2019 study, we are able to say that -

“SOX is effective in restraining the personal advantages of management.”

Cost of Sarbanes Oxley Act

A burden to Smaller Companies:

• Critics of SOX say it's placed an associate unfair burden on public corporations to suits Sarbanes-Oxley
(Orin, 2008, p.143). yielding with sections 404 and 302 is dear. it's not abnormal for corporations to own
accounting prices extraordinary one million bucks (Kessel, 2011, p.1082). These prices become extremely
not possible to obtain tiny corporations like biotech corporations. A biotech company could have $15
million in capitalization and no financial gain. tiny corporations receive the associate unfair burden of the
prices of SOX execution. New laws could permit corporations with but one billion in market analysis to
choose out of SOX. conjointly there are also provisions to exempt corporations for the primary 5 years
following their commercialism (Kessel, 2011, p.1082) [1]

Lower Profit on Early Stage:

• On March twelve, the SEC voted (by a vote of 3 to 1, with Commissioner Allison Lee dissenting) to
approve amendments to the faster filer and enormous accelerated filer definitions to produce a slender carve-
out for corporations that qualify as smaller news corporations (SRCs) and reportable but $100 million in
annual revenues within the most up-to-date twelvemonth that audited money statements were offered. [2]

The average value of yielding with Section 404(a) for smaller public corporations was $53,724. Total prices
of yielding with Section 404(a) ranged from $15,000 for a smaller computer code company to $162,000.
The initial prediction by the SEC was a mean value of $91,000 for public corporations yielding with Section
404(a). "Accounting issues have historically been tiny low company delusion, and therefore the stock
market is talking concerning delivering those keenest on abuse," aforesaid Barbara Roper. "It's a foul plan."
She noted a Jan study by business firm Lord & Benoit that found yielding with Sarbanes-Oxley would value
tiny corporations a mean of $78,000 the primary year, or but the $91,000 ab initio foreseen by the SEC. [3]

• Increase cost:

The total prices of being a U.S. public company, that were considerably plagued by SOX. Such prices
embody external auditor fees, administrators and officers (D&O) insurance, board completion, lost
productivity, and legal prices. every of those value multiplied considerably between FY2001 and FY2006.
Nearly seventieth of survey respondents indicated public corporations with revenues below $251 million
ought to be exempt from SOX Section 404. [4]

21
• Reduces Opportunities for Investors:

Their book (SOX) planned a comprehensive overhaul or repeal of SOX and a range of different reforms. as
an example, they indicate that investors might diversify their stock offerings, expeditiously managing the
danger of many calamitous company failures, whether or not thanks to fraud or emulation. However, if
every company is needed to pay a big quantity of cash and resources on SOX compliance, this value is borne
over all publically listed corporations and so cannot be diversified away by the capitalist. [5]

Benefits of Sarbanes Oxley Act [6]

By being SOX disciplined, corporations will avoid business risks. corporations would move by convergence
compliance and security to enhance company governance. SOX has been attributable to transportation
within the shift from a landmark on internal controls and compliance to specialize in risk management and
its classification with business objectives and processes for business price.

Fundamental areas wherever SOX duty has contributed to transportation business method
enhancements and price are:

Prioritizing Risks:

• Companies value more highly to have associate integrated and consolidated read of their business risks and
objectives. By establishing a unified and comprehensive risk management framework into the organization
culture, businesses take pleasure in corporate-wide visibility and transparency processes, coordination, and
timely protection. It conjointly will increase anti-fraud activities and performance watches.

Strengthening of management Structure:

• With customary management frameworks like COSO and COBIT, organizations square measure
strengthening their management structure and up the coalition between management and risk. This
conjointly helps contour the documentation of management and control processes analysis. Secure control
ends up in business advantages like progressively effective operations, extremely reliable money news, and
industry-leading consent programs.

Improving Performance of Audits:

• Enactment of SOX semiconductor diode to the institution of Public Company Accounting Oversight Board
(PCAOB) for the assessment of non-public liability to auditors, executives, and board members and
overseeing the management’s accounting selections. This enabled the audit to be associate freelance
assurance operations associated to make sure the operative effectiveness of an organization’s risk
management, governance, and control processes. This efficiency associated reduced the gap between the aim
of an audit and its fulfillment.

Centralized and automatic money news (SOX 302 & SOX 404):

• These sections square measure most vital and conjointly polemical thanks to the value and efforts
concerned. It needs extended tests of Internal Controls and certification of accuracy from the management. It
conjointly helps bring higher answerableness for the recording of journal entries and public disclosures.

22
As businesses thrive by making price, Sarbanes-Oxley Act may be a valuable ally in this effort. sensible}
SOX compliance method acts as a springboard to a lot of holistic good governance follow and technology
provides the competitive acme to business operations
Criticism and Praise of SOX
Criticism
SOX was an unimportant and expensive govt. intrusion into corporate management which stands American
corporation at a competitive inconvenience with foreign firms and driving businesses out of America. This
statement was given by congressmen Ron Paul and former Arkansas governor Mike Huckabee. A research
was published by Stanford University and Harvard Business School in the Journal of Accounting Research
in 2008 highlighted “ Regulation and Bonding’s SOX Act and the flow of international listings “smaller
International companies why are more likely to live in stock exchange in the UK alright then us stock
exchanges”[7]. During the financial crisis of 2007-2010, many critics impeached SOX because of the small
number of initial public offering (IPOs) on American stock exchanges during 2008. Even in November
2008 Newt Gingrich and co-author David W. Kralik appealed Congress to withdraw SOX.

Praise
Former Federal Reserve Chairman Alan Greenspan praised and said “ I am surprised that the Sarbanes-
Oxley Act, so rapidly developed and enacted, has functioned as well as in…has the act importantly
reinforced the principle that shareholders on our corporation and that corporate managers should be working
on behalf of shareholders to allocate business resources to their optimum use”. A cross-section of financial
industry specialists and citing improved investors praised and said that it was a more exact, reputable
financial statement. Many industries returned to their lucrative environment. US economic condition was
increased. The Institute of Internal Auditors (IIA) published research in 2007 and that was indicated SOX
has improved investor confidence in financial reporting, a primary goal of the legislation.

Public Company Accounting

Oversight Board 23
24
Introduction to PCAOB
To conserve the interest of investors and stakeholders through providing reliable, correct, informative, and
independent audit reports, a non-profit organization is established which the Public Company Accounting
Oversight Board (PCAOB) is.

It’s the first time in accounting history that audits of public companies of the United States are responsible
for free and extend … for this purpose.
Almost eighteen years ago from today, on July 30, 2002, PCAOB was formed in Washington, DC, USA.
United States Security and Exchange Commission (SEC) is the controlling authority of PCAOB. It’s all
rules and regulations are needed to … by SEC.

PCAOB has four main responsibilities according to the Skiable Oxley Act (2002).

1. Those accounting firms that audit public companies of US Securities marketing give them
registration is the responsibility of PCAOB.

2. PCAOB inspects public accounting firms that are registered.

3. Auditing and its attestation establishment is also a task of PCAOB (including QC and ethics)

4. And setting the parameter for those firms which are registered.

Organizational Overview
 As SEC, USA control and guide PCAOB, SEC appoints all the member of PCAOB. It’s formed with five
board members. One of them is the chairman. 

SEC doesn’t appoint the board members alone. It appoints the member with the consulting chairman of the
board of governor of the Federal Reserve System and with the secretary of the treasury. 

From the five board members:

1. One is a chairman
2. Two board members
3. Two members only
(N.B: All of them must be CPAs)

The chairman at the board … he also becomes the board member. Then, he is suspended from any kind of
CPA related activities for the next five years from he is being appointed. The board consists of 800
employees and its territory at 11 regional offices in different states. 

The funding of the PCASOB is funded by the audit relying upon companies and broker-dealers and the
budget approved by SEC, USA. 

Mr. William P. Dunce is the present chairman of PCAOB. He is elected as a chairman on January 02, 2018.
He is appointed by the SEC.

25
A prominent lawyer and former director of FBI and CIA Mr. William H. Webster is the first chairman of
PCAOB.
  Mission, Vision & Core Values
Mission
The PCAOB oversees the audits of public companies and SEC-registered brokers and dealers to protect investors and
further the public interest in the preparation of informative, accurate, and independent audit reports. 

Vision
The PCAOB will be a trusted leader that promotes high-quality auditing through forward-looking, responsive, and
innovative oversight. At all times, we will act with integrity, pursue excellence, operate with effectiveness, embrace
collaboration, and demand accountability.

Core Values
To acquire the objective, the PCAOB has some core values. Those are illustrated below:

1. Teamwork: PCAOB Team Consists of a group of energetic, experienced, qualified, and talented
professionals who0 work in such an environment depending on corporation and trust.

2. Fairness: Those public accounting farms are registered and associated with PCAOB treat them fair, neutral,
and in a compatible manner.

3. Excellence: I always want to do well in their sector. For pursui9ng this aspect, they combined many
professionals and trained them to enhance their oversight and activities.
 
26
 4. Public Interest: Securing public interest is an important task of PCAOB. Because they inspect and oversee
public company’s audit report. So, providing an unqualified report, they secure the public interest. 

5. Effectiveness: The budget they get from public companies approved by the SEC. By this funding, PCAOB
tries to handle its staff effectively and efficiently. 

6. Flexibility and Innovation: With its huge task force, PCAOB always try to do its activities flexibly and
innovatively.  

7. Integrity: It’s all officials, management, staff are bound to obey the standard ethical code. The staff must be
honest. So, they can do the work with integrity. 

8. Accountability: To acquire its mission and vision, all the people associated with PCAOB are responsible for
their work what they do regarding the audit. 

Goals and Objectives of PCAOB:

Sarbanes Oxley Act creates the Public Company Accounting Oversight Board (PCAOB). It has been created to take
care of the auditors of public companies. Moreover, this institution has been created to fulfill some specific goals and
objectives.

Goal 1:
- To enhance the confidence level of investors by using an effective supervisory pattern over
registered public accounting firms so that investors can keep trust in the audited financial statements.

Objectives:
- Establishing a way to assess the risk which will inspire to reveal accounting and auditing risks and to
solve these issues.
- Finding out risks regarding public accounting firms, evaluating the procedures of firms and activities
of the firm.
- Investigating the feedback of the firms.
- Operating an effective procedure which will find out the risk leading to audit failure and risk areas so
that board can take initiative to improve their specific areas.
- Establishing well-integrated rules and regulations to ensure a quality audit.
- Recognizing those grounds where public accounting firms and officials involved in audit activities
failed to make quality audit and taking the initiative to resolve those problems.
- Taking action against the violations of PCAOB’s standards.

Goal 2:
- Investigating the overall result regarding PCAOB’s overseeing activities and notifying the
participants and other groups related to the public accounting firms about activities and practices of
PCAOB.

Objectives:

27
 - Promoting effective strategy to emphasize the issues related to the issuer, market participants, and
recognizing such persons who can engage the outsides with public accounting firms in accordance
with PCAOB standards.
- Emphasizing on issues related to public accounting clients, and quality audit
- Assessing contracts with registered firms whether contracts are made or not.
- Conducting useful attempt to those firms which are not under PCAOB annual inspection and giving
guidance and materials for those auditors who are not under PCAO’s control.

Goal 3:
- Further emphasizing the efforts of the auditor of public accounting firms so that they could be more
effective and efficient in all over the world and the United States.

Objectives:
- Improving auditor’s efficiency through coordinating with US organizations such as SEC, FASB, etc.
- Conducting communication with standard-setting related bodies such as regulatory agencies and
professional bodies.
- Operating different activities with international auditing bodies so that non-US registered public
accounting firms should be facilitated.
- Emphasizing international efforts by which auditor’s activities, auditor’s practices, and auditing
regulations should be improved.

Goal 4:
- PCAOB should be conducted in a specified method which will be able to maintain its public mission
to keep its responsibility on its resource.

Objectives:
- Making highly qualified ones got the chance and continuing the procedure and recruitment.
- Overviewing the current recruitment procedure and bringing changes in the recruitment procedure as
needed to fulfill the recruitment objectives.
- Continuing to oversee opportunities and recruitment.
- Continuing to oversee the opportunity and remuneration so that the organization could be the best
choice.
- Managing or obtaining its mission and goal so that it could operate a strong relationship among
internal communication and bringing modification in relationship structure as needed to achieve its
mission.
- Improving the whole procedure by using information technology and spreading information across
the organization and making information available to all of the officials to keep them updated.
- Continuing to maintain the PCAOB’s standard and accountability and improving those standards as
needed to obtain the goal.
- Overviewing different strategies, initiatives, and objectives to adjust priority.
28
 - Creating a framework for implementing PCAOB’s strategic plan.

Powers of PCAOB :
The PCAOB has the following powers:

 Checking registered public accounting firms.

 Investigating registered public accounting firms and persons related to such firms regarding
disciplinary proceedings and imposing sanctions.
 Placing its offices, continuing its operation, and playing a big role in all circumstances of the US
regardless of the criteria of state law.
 Registering public accounting firms involving in preparing audit reports for issuers.
 Establishing several standards such as auditing standards, quality control standards, ethical standards
so that audit reports should be prepared in a standard way for the issuer.
 Appealing to prosecuting and protecting its entity in the US by dint of stock exchange Commission.
 Hiring staff, accountants, attorneys, and other agents in accordance with the PCAOB's mission.
 Accumulating, evaluating, and providing the board with accounting collaborative remuneration.
PCAOB under SOX exercises power on public accounting firms and plays a great role in the United States.

Conclusion:
Enron, Tyco, and other accounting scandals led to introduce the Sarbanes Oxley Act. After the introduction
of the Sarbanes Oxley Act, investors have strengthened their confidence. This Act introduced some
provisions that help to maintain rules and regulations of the company’s. The PCAOB has reduced audit risk
by guiding auditors to examine the audit procedures of the company. SOX has also strengthened the internal
control systems. The impact of SOX on the corporate sector is immense. It has created greater transparency
in the corporate sector. Although the compliance cost of SOX is high, it helps to maintain proper corporate
guidance and reduces fraud. SEC should also look into the matter of reducing the compliance cost of this
act. If the compliance cost reduces, companies will be encouraged to adopt this law. The report has
described ins and outs of the Sarbanes Oxley Act and PCAOB.

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1. ^ SMALLER ORGANIZATIONS?

May 27, 2014 by dcasst2002

2. ^ Sydney Posner, Cooley LLP, on

Saturday, April 4, 2020

3. ^ Neil Roland (June twenty three, 2008). "Low odds for stock market effort to ease Sarbanes Oxley:
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4. ^"Foley & humourist 2007 Study". Foley.com. February 8, 2007. Retrieved August twenty seven, 2010.

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7. Jordan, Cally E., Success and Failure in Stock Exchange Consolidations: Implications for Markets and
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☑ SOX Section 806: Sarbanes-Oxley Whistleblower Protection. (2020). Retrieved from https://sarbanes-oxley-
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☑ SOX Section 906: Corporate Responsibility for Financial Reports. (2020). Retrieved from https://sarbanes-oxley-
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Sall, M. (n.d.). Sarbanes-oxlex Compliance: Case Study Of "Beta Bank".

Jaeger, J. (2020). Case study: How Aramark reduced its SOX compliance costs. Retrieved 7 September 2020, from
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