Question

CEO Billy Jean has heard that due to the Sarbanes–Oxley Act, costs have increased significantly when operating a public company. Jean is especially apprehensive with reports that he can anticipate double the audit fees due to the internal control provisions of the Act and PCAOB Auditing Standard No. 2201. Jean has asked you to explain how the Sarbanes–Oxley requirements may affect the audit.

Required:

Organize and share your thoughts if the company decides to go public. How would complying with the Sarbanes–Oxley and PCAOB Auditing Standard No. 2201 change the company’s responsibilities for internal control? Then use your thoughts to:

• Describes the changes in internal controls (due to PCAOB and Sarbanes-Oxley standards) needed once they become a public company.

Answer 1

ANSWER

As per the given question,

The Sarbanes Oxley Act will increase the responsibility of the management over financial reporting and also compliance with internal controls of the company. There key sections of the Act require the management to carry out the following responsibilities:

1. Vouch for accuracy financial statements

2. All material facts relating to the off balance sheet items must be appropriately disclosed.

3. Have proper internal controls and report on their effectiveness

4. Provide protection to whistle blowers

5. Not influence the auditors and the audit process

PCAOB Auditing Standard no 2201 requires the company's auditor to report on the functioning of the internal controls of the company and report deficiencies if any there in.

Changes that will be required once the company goes public:

1. Develop an internal control policy and implement it across the organization.

2. Employ extra personnel to comply with the internal control requirements for maker checker concept, custody of physical assets et al.

3. Use technology to effectively implement the internal controls.

4. Changes in the roles and responsibilities of the employees

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