SOX is a rules based approach and extremely detailed. It is relevant to US companies, directors of subsidiaries of US Listed business and auditors who are working on US Listed businesses.
Below are some SOX Specific Provisions:
- The establishment of Public company accounting oversight board.
- Auditor should review internal control systems.
- There should be rotation in senior audit partner in every five years to avoid familiarity threat.
- Auditors are prohibited from carrying out non audit service.
It is one of the most famous rules based corporate governance code introduced in USA.
SOX is a rules based approach and extremely detailed. It is relevant to US companies, directors of subsidiaries of US Listed business and auditors who are working on US Listed businesses.
Key effects of SOX:
– Personal liability of directors for mismanagement and criminal punishment
– improved communication of material issues to shareholders
– Improved investor and public confidence in corporate US
– Improved internal control and external audit of companies
– Greater arm’s length relationships between companies and audit firms
– Improved governance through audit committees.
Negative aspects of SOX:
– Doubling of audit fee costs to organisations
– Onerous documentation and internal control costs
– Reduced flexibility and responsiveness of companies
– Reduced risk taking and competitiveness of organisations
– Limited impact on the ability to stop corporate abuse
– Legislation defines a legal minimum standard and little more.
SOX Specific Provisions:
– The establishment of Public company accounting oversight board.
– Auditor should review internal control systems.
– There should be rotation in senior audit partner in every five years to avoid familiarity threat.
– Auditors are prohibited from carrying out non audit service.
– Audit working papers should be retained for 7 years.
– Annual report should contain director report on internal control.
– CEO& CFO certify the appropriateness of the financial statements.
The above provisions are just for your knowledge purpose and is unlikely that it will be directly asked in the paper. Mostly you will be required to argue in favour or against rules or principles based approaches.
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