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Discussion Topic: Submit a thread on the effects of Sarbanes-Oxley (SOX) and the Public Companies Accounting Oversight Board (PCAOB) on auditing practice.

Please reply to 1 other student in 2 paragraphs. In the first, clearly state with which parts of the other student’s thread you agree or disagree. In the first paragraph, you must provide an explanation for why you agree or disagree with the other student’s post. In the second paragraph, add some additional comments of your own that add to the discussion.You will submit a reply to 1 other student’s thread from the previous module/week. Each reply must be at least 250 words.

Discussion Board Forum 2: The Effects of SOX and PCAOB on Auditing Practice Tamira Lewis Accounting 404 Professor John-Paul Churchill

The Effects of SOX and PCAOB on Auditing Practice

Ever since the development of Sarbanes-Oxley (SOX), all segments and fields of accounting were affected and had to make proper adjustments for new rules and regulations. However, it is not alone, for through this act, the Public Companies Accounting Oversight Board (PCAOB) was established and began to affect all fields of accounting, including auditing practices. The purpose of these reforms and changes was to improve the quality of financial statement reporting and increase the public’s confidence in financial reports; however, the effects are not always positive for every situation (Duchac, Douthett, & Goldberg, 2006). As a result, the PCAOB is continually making improvements in the auditing community by creating new standards, such as related-party auditing guidance (PCAOB, 2014). This particular standard was approved unanimously on June 10, 2014 “to toughen the requirements for auditors when reviewing business deals with related parties, including arrangements with corporate officers and directors, for conflicts of interest” (PCAOB, 2014). In action, the auditor will have to complete the specified steps to identify, understand, and account for any business transaction that could potentially be a risk for fraud or any legal violation (PCAOB, 2014). A PCAOB chairman, James R. Doty, explains that this practice is essential for it will help “avoid corporate failures and avoid harm to investors” (PCAOB, 2014).

The PCAOB has created successful standards that have improved the quality of financial services, but in the article “SOX: Unintended Dilemmas for Auditing,” it is explained that there are some “potential unanticipated consequences” as a result of SOX and it’s reforms (Duchac et al., 2006). For example, SOX created reforms that include auditors being limited to audit services, material misstated financials resulting in criminal penalties, and required auditor statements on management’s system of internal controls that inadvertently result in a “GAAP emphasis over contextual considerations” in the auditing community (Duchac et al., 2006). This means that it is possible that auditors may focus more on following rules and regulations rather than looking at the situation at hand and determining whether or not the inaccuracies were intentional or not.

SOX has also provided many benefits to the auditing arena, for it established the necessity of auditor independence and the PCAOB that is “focused on reaching out to audit communities in an effort to both educate them…[and] involve them in the audit quality inspection process” (Persellin, 2013). However, as the board reaches out to the audit community, it also has a beneficial effect of emphasizing the importance of the responsibility the auditing community has on the financial reporting oversight process (Persellin, 2013). 1 Corinthians 12:27 (AMP) says “Now you [collectively] are Christ’s body and [individually] you are members of it, each part severally and distinct [each with his own place and function].” The accounting community is similar to the body of Christ, for just as there are various gifts in the body of Christ that work together for the common goal to serve each other and God, there are various sects of accounting that work together for the common goal to serve the public. 1 Corinthians 12:21-22 (AMP) mentions that each part of the body needs each other and the same is in the accounting community. The success of accounting as a whole depends on the responsibilities that auditors have; therefore, it is beneficial that there are boards that will develop standards and regulations to help improve this faction of accounting.

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