ACC614 Week 3 Discussion 1 Impact of Sarbanes Oxley Act

Dear Mr Tucket, CEO

The reliability of internal controls is a source of widespread anxiety. Insufficient internal controls and frequently misrepresented financials may be alarming to shareholders and potential investors, increasing the cost of being exempt. The Sarbanes-Oxley Act (SOX) and the Public Firm Accounting Oversight Board (PCAOB) have made reviews of internal controls mandatory, which unfortunately comes at a higher cost to the business overall, both in terms of internal resources and external audit costs.

Documentation defining all internal control systems and testing of internal and operating controls will need to be prepared to meet the requirement, both of which will require the assistance of internal auditors, management, and maybe an external consultant. The audit group needs to know that information. To determine competence and objectivity, the external auditing firm must evaluate the provided information and perform its tests in the same or similar areas. The same goes for tests that go outside the scope of your team and examine regions with a significant potential for error.

There are six stages to an audit. I am preparing for the engagement, taking a top-down method, doing tests on controls, assessing any discovered potential weaknesses, reporting findings and offering an opinion. Leadership concerns are primarily raised concerning the stage of determining the gaps. Here are a few examples of problems that can arise from sloppy internal controls.

Restatement of previously released financial statements to rectify a substantial misstatement, proof of material misstatements that happened that were not avoided by current procedures, insufficient monitoring by the audit committee, and indications of fraud all constitute Material Weakness. There will be some extra expenses, but in the long run, the company will be better able to spot errors internally, provide more reliable financial reports, avoid costly mistakes and reissues, and minimize the likelihood of having to remediate the situation. Large Discrepancy is not a single problem here, but rather a collection of control worries that, taken individually, might not be all that serious but which, taken together, require more attention.

References

Louwers, T. J., Bagley, P. L., Blay, A. D., Strawser, J. R., & Thibodeau, J. C. (2021). Auditing & assurance services  (8th ed.). McGraw Hill