How the Sarbanes-Oxley Relates to Internal Control
‘Sarbanes-Oxley act’ (SOx) was endorsed in 2002 in the US, to address the limitations that came about with internal control rules (Moeller 57). It was sponsored by a personality, Sarbanes a senator and Oxley a representative. It initiates compliance to the existing accounting procedures and promotes transparency in fiscal reporting and documentation in unrestricted firms. Internal controls are procedures in accounting and commerce that ensures debits equals credits (Moeller 57). It helps preserve the company assets, ensure steadiness in bookkeeping records and conformity to enacted laws. This was after a series of pecuniary scandals involving key companies. This resulted in public upheaval as the public had no assurance in the domination of public conglomerate and their bookkeeping practices (Moeller 58).
The SOx established a regulatory entity to over see the auditing standards and process. The entity is known as the ‘public company accounting oversight board’ (PCAOB). This law does not pertain to privately-owned firms. To comply with the tenets of the SOx meant acting in congruence with the ‘PCAOB and the ‘securities exchange commission’ (SEC). The act mainly targeted the boards and control entities of the public firms where changes were initiated. It also emphasized the sufficiency of internal controls used in the commercial documentation and reporting. Section 404 undeviatingly deals with the in-house control measures of a firm (Moeller 60).
The novel risk-based values for auditing initiated by the PCAOB made the auditors reconsider their control procedures on auditing. It is noteworthy that SOx prohibited outsourcing tendencies pursued by internal auditors. It thus brought self-government between different categories of auditors. ‘PCAOB established new internal control auditing standards called the AS2’ (Moeller 58). AS2 initiated stringent measures on how to execute in-house controls on pecuniary statements of a company (Moeller 61).
AS2 was criticized thus; PCAOB established novel internal control values in mid-2007. This new set of internal control values was referred to as AS5. It was less troublesome and easy to comply. SOx emphasized that the company executives and other directors were to ensure this novel standards were consistent and effective (Moeller 57).
SOx also ensured that sovereign outside auditors must confirm that the internal control schemes are valuable. The unrestricted corporations, which failed, to meet the terms of the SOx were subject to fines and their officers could face penitentiary terms. Three momentous frameworks that were documented with reference to division 404 of the SOx thus better management of internal audit includes; ‘ITIL, relating ISO standards and COBIT’ (Moeller 57).
The act ensured the auditors comprehend their client’s in-house controls and augment the scheme of documentation. The act ensured proper segmentation of duties in internal controls of the company. The PCAOB was mandated with registering of the unrestricted bookkeeping firms that participated in the auditing. PCAOB is a vital tool in the streamlining of inside organization rules (Moeller 70).
Although some public entities had valuable in-house control standards and rules, they adhered to the SOx by reassessing such rules and standards. SOx act brought about review of control rules and their performance (Moeller). SOx regulate the control measures in a firm. In the end, enactment of SOx resulted in reduced cases of fraud in diverse corporations. In cases of fraud, it never went unnoticed; it led to the involved parties facing the law. This entailed serving penitentiary sentences and suspending institutional accounts. The relationship between SOx and control mainly involved regulation of auditing standards to curb swindling and deception in public firms.
Moeller, Robert R. Sarbanes-Oxley internal controls: effective auditing with AS5, CobiT and ITIL.New Jersey. John Wiley and Sons, 2008 57- 80.