The Sarbanes Oxley Act, or what is more popularly called SOX, was enacted by President George Bush in July, 2002. This law was passed in response to the discovery of monumental scandals of many leading American organizations, whose managements exploited the loopholes in accounting practices to carry out huge financial frauds.
While the SOX Act is primarily aimed at making managements more accountable in their financial management practices, because of which the managements have had to make major changes into their financial reporting practices; another profession that has been impacted in a major way by the passage of the Sarbanes Oxley Act is the accounting profession. This is because of the fact that while management has to show greater transparency; it is the professionals in the accounting profession who have to actually carry out these changes and present them to the concerned authorities. This requires them to implement a number of major changes into their accounting and reporting practices.
Change at the most basic level
At the most basic level, the nature of work of accountants has undergone a major change. They are now required to orient their work a lot more towards ensuring diligence in the bookkeeping practices than they were used to. Restoring confidence in the public and with the financial institutions and the government, as well as with the investor community, has become a very high priority for accountants. It signals a new orientation in their careers.
On the administrative side, the Sarbanes Oxley Act makes significant changes into the accounting profession. Making CEO’s and CFO’s responsible for the authenticity of financial statement and requiring them to certify the veracity of accounting statements; SOX established the watchdog, the Public Company Accounting Oversight Board (PCAOB). On this board, two CPA’s are required to sit, along with three other people who are not necessarily qualified as highly, but are expected to have fluency in the workings of financial systems.
Clipping many functions
More importantly, Sarbanes Oxley affects the accounting profession in more profound ways, because this Act has clipped many of their traditional supplementary functions. Sarbanes Oxley prohibits accountants from three major activities with a publicly listed company that comes under the purview of the Sarbanes Oxley Act:
Many of accountants’ functions pruned
Sarbanes Oxley affects the accounting profession in more ways. Based on the apprehension that auditors might influence financial decisions from managements by promoting a few services; Sarbanes Oxley bars accounting firms from implementing a client’s information system. They cannot also provide advice on investment, and they cannot advice managements on banking services and management services.
This requirement clips the wings of the accounting profession, whose bouquet of services has now got substantially reduced. They can help with tax preparation along with some allied services, but will have to do so only after getting approval from the board. In this way, Sarbanes Oxley affects the accounting profession by barring it from carrying out a variety of activities that were considered fluffy and auxiliary.
The accounting profession has to now be on its toes all the time – Read more