Question

The illegal actions of Enron and Arthur Andersen brought about what changes in the field of accounting? Check all that apply.

• Accounting professionals were now regulated by the Pubic Company Accounting Oversight Board.

• Criminal penalties were put in place so that CEO's and CFO's have repercussions if financial reports are falsified.

• Auditors are required to make public the accounting records of any firm they work with, given 120 days notice.

• The Sarbanes-Oxley Act was enacted.

Which of these are true about the external audit? Check all that apply.

• It is considered a "stamp of approval."

• A CPA submits an opinion on whether the statements were prepared in accordance with generally accepted accounting principles.

• It has to be completed once every ten years.

• The information remains private between the CFO and auditors.

Answer 1

A. The illegal actions of Enron and Arthur Andersen brought the following changes in the field of accounting :

1. Accounting professionals were now regulated by PCAOB.

2. Criminal penalties were put in place so that CEO's and CFO's have reprcussions if financial reports are falsified.

3. The Sarbanes-Oxley act wasn enacted.

Note : i) "Accounting records are required to be made public by auditor" does not apply because there is no such requirement for the auditor.

B. The following are true about external audit :

1. It is considered as a "stamp of approval".

2. A CPA submits an opinion on whether the statements were prepared in accordance with GAAP.

Note : i) "It has to be completed within 10 years" is not true because it is required to be completed every year.

ii) "Information remains private between CFO and auditors" is not true because the audit report along with audited financial statements are published for public.