How did the Sarbanes-Oxley Act result in "internal housecleaning" within firms?
What will be an ideal response?
Following several financial scandals involving companies such as Enron, Martha Stewart Living, Inc., ImClone Systems, WorldCom, Inc. (now MCI), and Tyco International, Congress passed the Sarbanes-Oxley Act in 2002. This act required publicly traded companies to set up confidential internal systems by April 2003 so that employees and others could have a method of reporting possible illegal or unethical auditing and accounting practices, as well as other problems such as sexual harassment.
Web reporting systems such as Ethicspoint allow employees of companies to click an icon on their computers and be linked anonymously to the reporting services. Employees may report alleged unethical or illegal activity. The reporting system then alerts a management person or the audit committee of the board of directors to any possible problem. Other systems use a special hotline phone number (800 or 900). No system is perfect, but the key factor is that Sarbanes-Oxley has given legal impetus to "cleaning house" internally.
Whistleblowing protection under Section 806 of Sarbanes-Oxley prohibits any publicly traded company from "discharging, demoting, suspending, threatening or otherwise discriminating against an employee who provides information to the government or assists in a government investigation regarding conduct that an employee believes may be a violation of the securities laws." Penalties are both civil and criminal in nature.
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What will be an ideal response?
Types of Audit Opinions For the past five years, Clark CPAs has audited the financial statements of a manufacturing company. During this period, the audit scope was limited by the client as to the observation of the annual physical inventory. Because
Clark CPAs considers the inventories to be material and was not able to satisfy the audit requirements by using other auditing procedures, the firm was unable to express an unqualified opinion on the financial statements in each of the five years. The CPA was allowed to observe physical inventories for the current year ended December 31, 2014, because the client's bank would no longer accept the audit reports. However, to minimize audit fees, the client requested that the CPA not extend audit procedures to the inventory as of the beginning of the year, January 1, 2014. REQUIRED: Which type of audit report would you suggest be issued this year and why?