R5.3 Sarbanes - Oxley Act of 2002 (SOX)

Each registered firm must adhere to the following audit standard:

- audit docs must be maintained for 7 years (criminal)

What are Registered Public Accounting Firm Responsibilities?

-> MUST maintain Audit Documentation *(Workpapers) for 7 years* -> MUST Concur or provide second partner to review each audit report.

The Sarbanes Oxley Act of 2002 requires that officers of a corporation be held accountable to a code fo ethics. According to the Act, codifications of *ethical standards should include:*

->Compliance with laws, rules and regulations ->Full, fair, accurate, and timely disclosure in periodic financial statements ->Honest and ethical coduct

The Sarbanes Oxley Act of 2002 required that the members of the audit committee of a public company be independent. Receipt of which of the following would destroy independence within the meaning of the law?

An audit committee member may received compensation for serving as a director, but *not* for being the company's president. Receipt of a president's salary would *destroy independence*

Personal loans to directors or executive officers

Prohibited under the Sarbanes Oxley Act of 2002. Exceptions exist for loans made in the ordinary course of business.

Employment of 1 of the Officer (CEO, CFO, CAO, Controller

So, To avoid Conflict of Interest, a registered Public Accounting Firm CANNOT perform an Audit for a Issuer (Public Company) If 1 of the Officer (CEO, CFO, CAO etc) of the company worked at the Auditing firm within 1 Year before / preceding the Audit.

Financial Expert should have knowledge of: Financial Report of Issuers MUST Disclose the Existence of "Financial Expert" (Not necessarily the Name) Qualifications as a financial expert is judgmental issue is typically made by the Board of Directors. Board makes the decision on who is considered the financial expert NOT audit committee

1) Knowledge of GAAP 2) Application of GAAP 3) Experience with Internal Control 4) Understanding of Audit Committee Functions 5) Financial Expert also qualifies through mix of education, past experience as a public accountant etc. Four was are defined in which the necessary attributes of a financial expert can be achieved: education, experience supervising a financial officer, experience overseeing auditors, or other relevant experience.

PCAOB (public company accounting oversight board)

5 members (2 CPAs and 3 nonCPAs) - register public accounting firms that prepare audit reports for securities issuance - establish rules relating to the preparation of audit reports for issuers - conduct inspections, investigations, disciplinary Only registered firm can audit SEC issuer

Disclosure of Transaction involving Management and Principal Stockholders

Any Officer or Director or owner of more than 10% of any equity security MUST file a report indicating how many shares they own within 10 days after becoming an officer, director or more than 10% owner of the Company.

Lead audit or coordinating partner and the reviewing partners must rotate off the audit

Auditor Partner MUST *rotate = Every 5 Years*

PCAOB inspections

Must Inspect registered firm *Annually* ---- Who conduct *MORE than 100 audits annually.* Must Inspect registered firm *Once Every 3 years* ---- Who conduct *LESS than 100 audits annually*.

Audit committee financial expert

The Audit Committee MUST have at least 1 Financial Expert, If NO Financial Expert then MUST Disclose WHY the fole is not filled