Sarbanes Oxley Act Section 201 Presented by: Sharyn McConnell

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Sarbanes Oxley Act- Section 201Presented by
Sharyn McConnell

• INDEPENDENCE precludes relationships that may
  impair the auditors objectivity. Auditors must
  be independent BOTH
• In-Fact
• AND
• In Appearance
• This ensures that users of financial statements
  maintain their confidence that they were prepared
  truthfully.

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Accounting Auditing Standards Governing
INDEPENDENCE

• GAAS Generally Accepted Auditing Standards
• The second General Standard states In all
  matters relating to the assignment, an
  independence in mental attitude is to be
  maintained by the auditor or auditors.

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AICPA Rules of Conduct

• Section 100 of the AICPA Rules of Conduct
  currently contains two rules related to
  independence, integrity, and objectivity.
• Rule 101 A member in public practice shall be
  independent in the performance of professional
  services as required by standards promulgated by
  bodies designated by Council.

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AICPA Rules of Conduct

• Rule 102 In the performance of any
  professional service, a member shall maintain
  objectivity and integrity, shall be free of
  conflicts of interest, and shall not knowingly
  misrepresent the facts or subordinate his or her
  judgment to others.

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AICPA Rules of Conduct

• AICPA professional standards require public
  accounting firms, the individual partners, and
  the professional employees, to be INDEPENDENT
  whenever the firm performs an attest service for
  a client. Attest Services
• Financial Statement Audits
• Financial Statement Reviews
• Other Attest Services

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AICPA Rules of Conduct

• Auditor INDEPENDENCE is important to ensure that
  the stockholders best interests are being
  protected.
• Rules 101 and 102 of AICPA Rules of Conduct
  include a detailed interpretation of activities
  and services that would impair an auditors
  independence.

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SOX Section 201

• Sarbanes-Oxley includes rules to strengthen
  auditor independence.
• Section 201 of the Sarbanes-Oxley Act lists nine
  non-audit services that, if provided by the
  accounting firm, impair the firms INDEPENDENCE.
• SOX also requires the financial statements to
  include additional disclosures regarding the
  services provided to the client, by the
  independent auditor.

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SOX Section 201, Non-Audit Services

• 1. Bookkeeping or other services related to the
  accounting records to financial statement of the
  audit client.
• An audit firm should not audit any bookkeeping
  services provided by their own firm.
• 2. Financial information systems design and
  implementation.
• An important test of internal controls performed
  by an audit firm is of the Accounting Information
  Systems. The INDEPENDENCE of this test would be
  IMPAIRED if the auditor audits the systems they
  have set up and placed into service.

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SOX Section 201, Non-Audit Services

• 3. Appraisal or valuation services, fairness
  opinions, or contribution-in-kind reports.
• Appraisal and valuation services may include any
  process of valuing assets (tangible or
  intangible) or liabilities.
• Example Inventory valuation
• In fairness opinions and contribution-in-kind
  reports, an audit firm provides its opinion on
  the adequacy of consideration in the transaction.

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SOX Section 201, Non-Audit Services

• 4. Actuarial Services
• Involves the determination of amounts recorded in
  the financial statements and related accounts.
• Example Pension Expense calculation to
  determine whether a fund is overfunded or
  underfunded
• 5. Internal audit outsourcing services
• The External Auditor may NOT provide services
  that have been outsourced by the internal
  auditor. This would impair the external
  auditors INDEPENDENT evaluation of the companys
  internal controls.

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SOX Section 201, Non-Audit Services

• 6. Management functions or human resources
• The auditors INDEPENDENCE is IMPAIRED when they
  seek out prospective candidates for managerial,
  executive, or director positions.
• The audit firm may not act, temporarily or
  permanently, as a director, officer, or employee
  of their client.
• The audit firm may not perform any
  decision-making, supervisory, or ongoing
  monitoring function for their client.
• The audit firm may not recommend or advise the
  client to hire a specific candidate for a
  specific job.

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SOX Section 201, Non-Audit Services

• 7. Broker or detail, investment adviser, or
  investment banking services.
• The auditors INDEPENDENCE is IMPAIRED if they
  act as a registered or unregistered
  broker-dealer, promoter, or underwriter on behalf
  of their client.
• 8. Legal Services
• If a legal service could be provided by someone
  licensed, admitted, or otherwise qualified to
  practice law in the respective jurisdiction, an
  auditors INDEPENDENCE would be IMPAIRED if they
  did provide the service.

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SOX Section 201, Non-Audit Services

• 9. Expert services unrelated to the audit
• An auditor may not act as legal representation of
  an audit client, in order to advocate a clients
  interests, in litigation nor in an administrative
  proceeding or investigation.
• An auditor may provide factual accounts or
  testimony to explain conclusions reached during
  the performance of their services, especially if
  subpoenaed by a court of law.