Additional aspects of Sarbanes-Oxley Act explained. (news update).Last month's CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. Letter highlighted some of the more significant and better known provisions of the Sarbanes-Oxley Act See SOX. of 2002. In response to member inquiries, this follow-up article briefly describes some additional provisions that have important ramifications ramifications npl → Auswirkungen pl , especially for public accounting firms auditing public companies. Registration Process After the new Public Company Accounting Oversight Board The Public Company Accounting Oversight Board (or PCAOB) (sometimes called "Peekaboo") is a private-sector, non-profit corporation created by the Sarbanes-Oxley Act, a 2002 United States federal law, to oversee the auditors of public companies. established by the Act is "certified See certification. " (that is, the Securities and Exchange Commission declares the PCAOB PCAOB Public Company Accounting Oversight Board operational and able to carry out its responsibilities), which must occur no later than the end of Apr. 2003, public accounting firms will have 180 days to register with the board. Most of the provisions affecting practitioners will be effective upon the firm becoming registered. The board has 45 days to act upon any application, and audit services cannot be performed for a public company after the 180-day period. Therefore, firms are cautioned to allow sufficient time to get registered--up to 135 days (180-45). Who needs to register? Accounting firms that "prepare or issue" or "participate" in the preparation of an audit report for an "issuer" must sign up with the board. The term "issuer" is defined in the Act and is a key factor in determining whether registration is required. But the definition still leaves many unanswered questions that need to be addressed before the full breadth of the Act is known. Likewise, it is unclear what is meant by the word "participate" in the preparation of an audit report for an issuer. This, too, will have to await rulemaking to clarify what firms need to register. Filing the registration is significant because it includes consent by the firm to cooperate with the board in requests for documents and testimony and an agreement to obtain similar consents from each person providing any audit services to issuers. It also requires similar consents and agreements for foreign firms. Finally, firms are required to update this information at least annually. Funding The only fees firms pay to the board are for the cost of processing and reviewing the applications and annual reports. The board will get its major funding from issuers in proportion to their equity market capitalization Equity Market Capitalization A measure of the total market value of an equity market. The measure is calculated by taking the market capitalization of all companies in the equity market and adding them together to arrive at the capitalization for the market as a whole. . Non-Audit Services Most of the non-audit services that the Act says cannot be performed by audit firms for their public company clients were already prohibited by the SEC's auditor independence rules. New to the list of banned non-audit services is "expert services." In addition, both internal audit outsourcing and information systems and design--which had exceptions under the SEC's rules--are now strictly prohibited. All other services are considered to be permitted, including tax services, if pre-approved by the audit committee. Document Retention Document retention is governed by three provisions (which are not consistent): a seven-year period for all documents that support a firm's report (not effective until a firm is registered); a five-year period in the criminal provisions of the Act that covers all audit and review workpapers (this appears to be effective immediately; the SEC will be releasing rules relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc documents covered by this section); and an undefined category of documents in connection with the board's inspection program which awaits board rulemaking as to its nature and scope. Inspections One of the board's duties is to conduct inspections (formerly peer reviews) of the registered firms. For firms with more than 100 issuers as clients, the inspections will occur annually. For all others, an inspection will occur at least every three years. The board could adjust these schedules at its discretion. It does not appear that firms will pay the cost of these inspections. But the board's inspection concept is fundamentally different from the current peer review. It is no longer firm on firm and it is no longer remedial. Inspections will be conducted by the board's inspectors (although it remains to be seen whether the board will hire outside firms to assist in this process). Any violations of the Act, the rules of the board or the SEC, professional standards, or a firm's own quality control policies, could be the basis for disciplinary action by the board and reported to the SEC and state accountancy boards. They also will inspect matters subject to litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. . (One further note, a question remains as to whether the board's inspection program will satisfy the peer review requirements of some of the state accountancy boards.) Disciplinary Functions Disciplinary functions are another major activity of the PCAOB. Many are similar to what is already in place by the AICPA AICPA See American Institute of Certified Public Accountants (AICPA). and the SEC. However, there is no deferral deferral - Waiting for quiet on the Ethernet. for matters subject to litigation. And while confidentiality provisions protect most documents prepared or received by the board in connection with investigations, they can be shared with regulators. Regarding sanctions Sanctions is the plural of sanction. Depending on context, a sanction can be either a punishment or a permission. The word is a contronym. Sanctions involving countries: Foreign Firms The Act applies to foreign firms which furnish fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. reports with respect to any issuer and could apply, if the board so rules, to foreign firms that play a substantial role in the audit process. However, a U.S. registered firm that relies on the opinion of a foreign accounting firm is deemed to have consented to supplying the audit workpapers of the foreign firm in response to a request by the board or SEC and to have secured the agreement of the foreign firm to such production as a condition of its reliance on the opinion--but foreign law may not permit this. There is an exemption authority with the SEC and the board to deal with such matters. Continue to watch The CPA Letter and visit www.aicpa.org for further details as developments occur. President Bush signed the Sarbanes-Oxley Act on July 30; the SEC has 90 days from that date to identify board members and 270 days from that date to certify cer·ti·fy v. cer·ti·fied, cer·ti·fy·ing, cer·ti·fies v.tr. 1. a. To confirm formally as true, accurate, or genuine. b. that the board is operational. Rich Miller, General Counsel, rmiller@aicpa.org |
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